Back-dating: A Simple Tip That’ll Save You Thousands
Answer the following: How old are you?
Are you sure? It may come as a surprise, but most life insurance companies may disagree with your answer half the time. This is because the life insurance industry often subscribes to the term “age closest.” This means that you are regarded as being the age you are closest to in-between birthdays. For instance, if your 61st birthday is January 1st, insurance companies regard you as being 61 as soon as July 1st the previous year.
Older people often experience significant increases in their premiums every year. For people whose policies began with them as an older age, extra money spent on premiums can really add up. For example, a 61-year-old could pay as much as $18 more per month for a $100,000 Term to 100 life insurance policy than a 60-year-old would pay.
How to Avoid Paying Extra by Backdating Your Policy
If the monthly premium is $200 per month a $16 saving would provide savings of $192 per year*. If the policy was approved August 1st for this person above, he would be better to back date the policy to July 1st, pay an extra month’s premium of $200 to do this, and save $192 per year for as long as he owns the policy.
If it was issued in September, an argument could be made to pay two months or even three months of extra premiums to back it to July 1st given the savings every year of $192. If this 62 year old lives to age 87, he would have saved $192 per year for 25 years or $4,800 – not bad for an investment of $192 or even $576 if it was backdated three months. The maximum one can back date is six months and that might be rejected by a few companies depending on the circumstances.
This tip will affect about 10% of the policies issued and the larger the premium and older the client, the greater the savings so it is well worth keeping in mind when you apply for a life insurance policy.
Another way to avoid paying the extra premium is to use a company that uses your exact age, instead of age closets.
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* $75000 of permanent insurance for a 62- or 63-year-old male in good health based on Compulife November 25, 2013