Whenever you plan to purchase an insurance policy, you plan to save as much money as you can. And it’s when you heard that backdating your insurance policy can help you achieve your goal. Since you don’t know much about backdating a policy, you start thinking about what happens when your insurance policy is backdated.
A quick answer is that you can save a significant amount of money by backdating an insurance policy. When you backdate a policy, then your policy begins on a past date. It becomes active and you pay premiums for the past months as well. You get a lower premium rate and save money in the long run.
What Happens When an Insurance Policy is Backdated?
Matrix Insurance helps you understand the complete picture of this situation. Therefore, we are going to explain both the positive and negative aspects of this situation. But before I start explaining what happens when an insurance policy is backdated, I would like to explain some terms:
Actual Age: It is your real age
Nearest age: It is an age you are physically close to
Insurance age: It’s the date that insurance companies showcase on your policy, it is generally your nearest age.
Benefits of Backdating an Insurance Policy
Now let’s find out what benefits you can get from backdating an insurance policy.
Disadvantages of Backdating an Insurance
Lower your premium
The very thing that happens when you backdate a policy is to get a lower premium rate from the insurance company.
For example, if you need an insurance policy when you are 33 years and 6 months old, then the insurance company will give you a premium quote for 34 years. So, applying to a policy at your half birthday will increase your premium rate. Your premium rate depends on your age. When you get older, life expectancy goes down. As death risks increase, the insurer also increases the rate of premium.
However, if your actual age is 33 years and six months old; you can reduce your premium rates by backdating the age to 3 months. In that scenario, the insurer will give you a premium rate for 33 years, instead of 34 years.
Premium decreases, and you save money in the long run.
Insurers consider age to calculate the risk factor. The premium rate will be lower for a young and healthy person than for an aged unhealthy one.
Make payments during high seasons (seasonal income)
When you have unsteady income or when your income keeps fluctuating then backdating your insurance policy will benefit you. A policyholder can work with an insurer and decide to pay premiums during the busiest season.
As a result, this policy becomes affordable and you don’t need to burden yourself with payment during the off-season.
Early Maturity
Another reason most people choose to backdate their insurance policy is the early maturity of the policy. Since you backdate your policy and pay more premium during the seasonal time, your insurance premium due date comes early. It’s the point to decide whether or not to renew your insurance policy.
Disadvantages of Backdating Life Insurance
You know what happens when an insurance policy is backdated (a positive side), it’s time to see the other side of the picture. In some cases when it’s not an ideal approach.
Not suitable for low-budget
If you backdate your policy, it means you will pay the amount of the past month’s premiums as well. You can afford this change, only when you have sufficient budget and income. Otherwise, it’s a costly deal to make.
Not ideal for a younger person
If you are 25 years old and think about backdating your insurance policy, then you won’t save much. It’s because premium rates for 20 to 25-year-old people are the same. There won’t be any money savings in the long run.
Not benefit in term insurance policies
If you are planning to get term life insurance, backdating won’t benefit you at all. Instead, it will become costly in the long run. By paying the past month’s premium, you will be wasting the coverage of that period. In case you want to make the most of your term policies, stick with the most recent date.
Should I backdate my insurance policy or not?
We have told you what happens when an insurance policy is backdated. It saves your money and brings early maturity for you, but only when you are older than 28 years. However, when you are younger, back-dating won’t be the right approach for you. Still not sure whether to backdate your life insurance policy or not?
Call our agents at Matrix Insurance Services and ask them all the questions you have, such as how far you should backdate your insurance policy or if it’s legal to do so. And if you have any more questions, simply reach out to our life insurance agent, Sara Thompson, at (706)-310-0000. She is here to provide you with the most affordable quote tailored to your situation.