Important Dates When Applying for Life Insurance in Canada  hayesweb2022-12-01T11:10:37-04:00
When applying for Life Insurance, Critical Illness or Disability Insurance, life insurance companies will date the insured closest to their next birthday. Therefore there are some important dates for when you’re applying for a life insurance policy in Canada. Insurance companies have different monthly costs for every age, making it difficult to understand if it is worth backdating your policy, or just to “current date” your policy. It is important to consider these factors when applying for life insurance, critical illness or disability insurance because it could be saving you money in the future, but in some cases it might not make sense in the long run.
How Insurance Companies Use Dates When Quoting You
To understand how insurance companies might quote you and why effective and application dates play a big factor, we will use a client named Bill as an example. Bill is currently aged 39 and applies for life insurance and a separate critical illness insurance policy on Jan 15, 2022. Bill celebrates his 40th birthday later that month on January 29, 2022. Although Bill is currently 39 years old, the insurance broker will typically quote Bill as a 40 year old male. The reason behind this is that insurance companies date applicants closest to their next birthday. At the same time, if Bill had his insurance policy issued on July 28, 2021 (6 months and 1 day prior to his next birthday) the insurance company would consider him as a 39 year old male.
Application Date vs Policy Issue Date
If Bill had applied for insurance on July 28, 2021, it would not necessarily mean he would be quoted as a 39 year old male. The reason being is the application date (date insurance policy is applied for) can be different from the issue date (date the insurance policy is put in force). It is possible that Bill could have applied and been approved on the same day through a quick issue insurance policy, however generally speaking once an insurance policy is applied for it can take a few days to up to a few months for policy to be issued, depending on underwriting requirements.
Read our article on How to Get the Best Life Insurance Policy and Rates in Canada to find out what life insurance policy is right for you!
Save the Age or Current Date
Although Bill may have a policy issued within the 6 month period closest to his next birthday, the life insurance company will allow Bill to “save the age” or backdate the policy to be 6 months and 1 day prior to his next birthday. What this means is if the life insurance policy Bill applies for on Jan 15, 2022 is approved just a couple days later on Jan 17, 2022. In order to “save the age” and be quoted as a 39 year old Bill would ask his insurance broker to advise the company to issue the policy based on 6 months and 1 day prior to his birthday (or July 28, 2021). However, this backdate would require Bill to pay for premiums effective July 28, 2021 (or approximately 6 months of premiums during a time he did not have coverage). The question is: would this make sense for you considering the important dates when applying for a life insurance policy Canada?
When to Save the Age
Typically, it makes sense to “current date” insurance policies, especially where there are several months of backdated premiums potentially due. As a rule of thumb, when there is a relatively short period to backdate, for example, if Bill was issued a policy Aug 1, 2021, it may make sense to have the insurance company backdate a few days to conserve his age.
Another instance where backdating would make sense, is if in the long term the numbers would be justified. Let’s suppose both the life insurance and critical illness insurance policies for Bill were issued Jan 28, 2022 (1 day before his 40th birthday). In order for him to be quoted as a 39 year old he would have to backdate the policy to be issued as of July 28, 2021. Would it make sense for Bill to pay 6 months of premium? This would be dependent on the premium difference between being aged as a 39 year old male versus a 40 year old male and how long the policy was in place.
Important dates when applying for a life insurance policy in Canada example #1
In example #1 it would make sense for Bill to backdate or save the age on his life insurance policy, but below in example #2, it would make sense to current date his critical illness insurance policy instead of backdating. Every circumstance is different and there are times where long term the numbers might make sense but in practical terms paying for backdated premiums is not a viable solution for everyone.
Important dates when applying for a life insurance policy in Canada example #2
Frequently Asked Questions (FAQs) about Important Dates When Applying for Life Insurance
Typically, it makes sense to “current date” insurance policies, especially where there are several months of backdated premiums potentially due. As a rule of thumb, when there is a relatively short period to backdate. This is important because it can make you end up paying premiums that are more expensive. Although premiums might be only a couple extra dollars a month, they will add up over time.
Backdating is the practice of marking a life insurance policy with a date that is prior to what it should be. This is important in purchasing life insurance because sometimes you will save money because of the fact that it is cheaper to be rated as your previous or current age rather than what age you will be in your next birthday.
Term life insurance provides coverage for a set period of time, typically between 10 and 30 years, and is a simple and affordable option for many families. Whole life insurance lasts your entire lifetime and also comes with a cash value component that grows over time.
No medical life insurance is a certain type of life insurance that you can buy without having to undergo a medical examination. This type of life insurance is easier to apply for and usually has a shorter application period.
Yes, seniors can definitely purchase life insurance in Canada. There are awesome term life insurance policies as well as whole life policies that are out there that can provide coverage for seniors 60 years and older.
Family life insurance is an insurance package that is provided by many different Canadian life insurance companies. Family life insurance is basically a regular term life insurance or permanent life insurance policy with additional riders such as children’s insurance, critical illness insurance and disability insurance.
The best time to buy life insurance ultimately depends on your situation: if you see a reason for having life insurance at an earlier age such as because you’re starting a new occupation that is dangerous, or you’ve recently purchased a house for your family and have taken out a mortgage. People tend to buy life insurance early for a way to help their families in the event that something unfortunate happens.
In general, it’s also better to buy insurance early to save on costs – the earlier you apply for a life insurance policy, the cheaper your premiums will cost and you will be able to lock that rate in, rather than waiting years later when the costs will rise with your age.
Finding the right life insurance for you
If you’re not sure some of the important dates when applying for a life insurance policy in Canada, working with a life insurance specialist can help you find the best solution to fit your particular situation. At Protect Your Wealth, we’ve been providing expert advice for all types of life insurance since 2007. As your trusted Life Insurance broker and financial planner, we work with you to create a plan for your family or business that covers and meets your needs.
Contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today. We’re proudly based out of Hamilton, and service clients anywhere in Ontario, including areas such as Kitchener, Guelph, and London.
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