effective date is an important of any
insurance policy. It
can affect the price you will pay and
more importantly, how soon you will
actually be covered. In most
cases, this may not matter but
occasionally, it makes all the
difference if the applicant passes away
shortly after completing the
application. In some cases,
companies will allow
backdating this date. Let's look a
little closer at how this works.
Backdating has been in the news but only
referring to the scandalous behavior
regarding insider stock purchases.
The type of backdating we're discussing
effective date and no such
stigma. Essentially, some carriers
may allow you to backdate your effective
date. First, what is it and what's
the impact of doing this?
Backdating is where a insurance carrier
allows the applicant to apply a
different effective date than the actual
application date. State laws
usually do not allow backdating more
than 6 months prior to the application
date. With that fact, if the
carrier allows backdating, roughly half
of the applicants may benefit from such
a move during the calendar year.
There's usually a spot right on the
insurance application to
request such an action. As with
all issues regarding the technicalities
of term life options, we recommend that
you run your situation through us as
licensed life insurance agents to make
sure it's the right move.
biggest issue may be the
term life insurance rate that
you are charged. A big factor that
drives life insurance cost is your age
at the time of enrollment. In our
term life and age effect article, we go
in detail as to how important age is in
determining your final rate. It
might be the biggest consideration which
is the premier reason not to wait.
Backdating allows an applicant to
qualify under a younger age and
consequently, a lower rate.
example, let's say a person is 39 and 9
months old and the carrier is applying
the nearest age approach to designating
his/her life insurance premiums.
If we go based solely on his application
date, the rate will be based on age 40.
If the carrier allows the applicant to
backdate 3 months, the new rate would be
based on age 39. This can add us
to real money when you figure that the
term life policy may be active for years
if not decades.
have either minimum or maximum allowable
age ranges. Backdating may allow a
person who wouldn't qualify based on
these ranges to now be eligible for term
life. If the maximum age to be
eligible for life coverage is 80 and you
are 79 and 8 months, backdating would
allow you to qualify if you go back 3
months assuming the rating is based on
there a downside? The term life
applicant will need to pay for the
preceding time...essentially time that
has already passed (obviously without
any issues). So you need to weigh
this lost premium versus the savings
over the life of the term life policy.
Again, we would be happy to help here.