How many phone calls or emails have I received suggesting that I must have made a mistake on a client’s life insurance quote because they’re really, for instance, age 50, not 51. Trust me! At my age adding a year to my life that I haven’t earned yet is not a welcome thing, but even at younger ages when you know the price of your life insurance is based on health and “age”, being a year older before you’re really a year older seems unfair. In fact it seems down right unscrupulous. If you’re not 51, how can I tell you or a life insurance company tell you that yes, you are 51.
So how does this work? Life insurance companies use one of two methods to determine the age to be used in computing quotes, actual age (kind of self explanatory) and age nearest. With age nearest you are the age that you are nearest to. Today is March 14th and if that was your birthday you would be actual age 63 as of today and you would have been nearest age 63 September 15, 2015. You will still be nearest life insurance age 63 until September 14, 2016. On September 15 you will be nearer to 64. And where is the advantage, for the life insurance customer and the company? For the company it seems obvious that if they can make you older quicker it should increase profits, right. Well, yes and no, or maybe.
As an example I ran quotes for $500,000 of 10 year term and Lincoln, using March 14th, was the best rate prior to today at $1848.00 a year. As of the actual age change today Prudential, who had been at age 62, $1800.00 a year, changes to age 63, $2020.00 a year. For the last 6 months Pru has been better than Lincoln, but 6 months and a day prior to the actual birthday, when Lincoln was age nearest 62 they were at $1647.00 a year.
Now that we have thoroughly confused 99% of the life insurance consumers and 95% of the agents, let’s throw in “backdating to save age” By law a client and company are allowed to backdate the policy, up to six months, to save age and pay a lower premium over the life of the policy. Using our example above and assuming it was April already and Prudential was at $2020.00 a year, we could backdate the policy prior to the March 14 birthday, save age, and our premium would be $1800.00 annually. Before you assume this is a gift, allow it to soak in that you “buy” the backdate. If I want the policy dated prior to March 14th, even though the policy wasn’t in force at that time, I would pay premiums from March 12 or so for the opportunity to back date.
Bottom line. Well, got you all confused again didn’t I? If you have questions or if you are very close to your actual birthday or half birthday, make sure to ask your agent about backdating and if it will help lower your premiums enough to justify it. Rule of thumb is that the older you are and the shorter period you backdate, the bigger the advantage. If your agent doesn’t have the answer, call or email me directly. My name is Ed Hinerman. Let’s talk.