If you’re in your 30’s life insurance backdating is not an issue that you probably need to know about or even consider simply because, at your age, the cost of insurance doesn’t change much, if any, from year to year as you get older.
Not so when you’re talking about vintage over 50 life insurance and even more so when it’s over 60 or 70 life insurance. Life insurance age is determined one of two ways, either by age nearest (which birthday are you closest to), or actual age (your age at your last birthday).
By law you can backdate a life insurance up to 6 months to save age in order to get the lower cost per thousand that pertains to that age. I have a client I am currently working with who had an age change in June of this year. We are backdating his policy to May 28 to save age because the premium on his policy will be $3400 less per year than if we date it at his current age. It is important to understand in backdating life insurance that if you choose to do it, you are agreeing to pay premiums from the backdate, not from the time the policy is issued. In his case the policy was put in force 3 months after the May 28 backdate so he paid for three months worth of life insurance that he didn’t have. He paid that three months premium for a lower cost per thousand.
So, that sucks that you have to pay for something you didn’t have, right? If you don’t do the math that might be the conclusion, but let’s run this out. He is paying $40,000 a year for a backdated permanent policy that he needs for estate tax purposes. The three month backdate will cost him $10,000. The difference in cost is $3400 a year so by the fourth year he will be saving $3400 a year over a current dated policy. He has a guaranteed level premium to age 100, 25 years. His parents both lived into their 90’s so for the sake of this example let’s say he lives to 95, 20 years. He breaks even after 3, so for 17 years he saves $3400 a year, $57,800. Take back the $10,000 backdate money and he still saves $48,000.
Of course all life insurance backdating isn’t that dramatic, but it is usually worth considering. Even if the difference is only $100 a year on a 30 year term insurance policy and you you have to pay $200 to backdate, over the life of the policy you save $3000. Always make sure you do the math if you are near your birthday or half birthday for age nearest companies.
But backdating doesn’t work for everything. For instance, Lincoln Financial is following suit with a lot of other companies and replacing their no lapse guarantee universal life with a higher priced product. The deadline for an application for the old, lower priced product is the end of the month. If you wait until next month you can’t backdate your policy to take advantage of the lower priced product. Right now…Today, Lincoln National has a screaming good deal on lifetime guarantee UL’s. Two weeks from now they won’t and there is no recourse for buyer’s remorse.
Call it a fire sale. Call it “I told you so”. But if you call after next week, you can’t call for the old pricing. If you call next week and get a quote for the old pricing and think about it for a week, you won’t get the old price, you’ll get a new quote at a significantly higher price.
I have been yelling from the rooftops and ringing the bell about this for nearly a year now. We are now down to just a few companies that still haven’t changed their rates.
Bottom line. If you need permanent insurance, apply now. If you want to see if you can save money by replacing an old whole life or universal life insurance policy, apply now. If you have a policy with one of the companies that has screwed you right out of your conversion option, apply now for permanent insurance. If you think some amount of permanent insurance might be in your future and you don’t apply now, you will miss an opportunity that can only be characterized as “huge”. And don’t forget to ask about backdating to save even more money.