Do you know anyone who has been able to save age in life insurance? If so, maybe you wonder what the heck they are talking about.
Well, I am here today to fill you in on this super cool tip which may save you some money on your premiums.
At Huntley Wealth we love a good deal and we sure are good at getting ’em!
So let me fill you in on an industry secret…
Typically the quote issued by a life insurance company is for one year older than your actual age.
Yep! Let me explain why:
Nearest Age Vs. Actual Age
Most consumers are unaware that life insurance companies use your “nearest age” rather than your actual age to calculate premiums for your policy.
For example, today is 4/18/2017. Let’s say you turned 60 years old on October 1st 2016. Your actual age today is 60, so it would be logical for you to expect to receive a quote for that age.
…BUT for the purposes of life insurance companies you are 61 and your premiums will be calculated for that age.
This is because your birthday was over 6 months age and you are closer to 61 than 60.
So why is this important?
How Age Affects Your Life Insurance Premiums
Simply put, every year you wait to purchase life insurance, your premium increases! Let’s take a closer look at my example above. This male non smoking client is rated Preferred and looking for a 20 year term with $500,000 in coverage. Here is the difference in dollars and cents from Banner Life:
Actual Age 59 (60 for life insurance purposes): $247.55 per month/$2970.60 per year = $59,412.00 over a 20 year term
Actual Age 60 (61 for life insurance purposes): $287.39 per month/$3448.68 per year = $68973.60 over a 20 year term
The difference is $9,561.60 over your term!
As you can see, having a birthday can cost you a lot of money in life insurance premiums! Whatever you do, don’t underestimate the power of your age!
Backdating to Save Age in Life Insurance…and Money!
Fortunately, life insurance companies let you backdate your policy to lock in a premium for a specific age.
In the example above, my client turned 60 on October 1st 2016. That means his insurance birthday would be six months later on April 1st 2017. So I will request that the policy date be changed to March 31st 2017 so he can enjoy the premiums received by a 60 year old as opposed to a 61 year old.
Insurance policy backdating is a very common trick used to keep premiums down.
The only catch is, if the policy commences March 31st 2017, my client will have to pay premiums from that date onwards before his policy goes into effect. Which means he will have to shell out money for a few weeks worth of insurance that he won’t be technically covered for.
Pretty neat trick right?
It’s not uncommon for life insurance agents to backdate two, three, or even four months to save age. When you are looking at saving thousands of dollars over your 20 year term, it makes sense to cough up a few extra months of premiums to offset that loss.
Backdating Life Insurance Means More Cash In Your Pocket – Let’s Look at the #’s
Simply put, every year you wait to purchase life insurance results in a premium increase. Let’s take a closer look at my example above. This client is a non smoking male, who has recently obtained a Preferred rating. He is looking to obtain $500,000 in coverage for a 20 year term. Check out the difference in rates at 60 and 61 if he opts for Banner Life:
Age 60: $213.27 per month/$2559.24 per year Age 61: $241.67 per month/$2900.04 per year
The Difference over 20 years: $6816.00!
Let’s say that my client had a birthday that would require him to make up 4 months of payments if he were to backdate his policy to age 60. This would cost him $853.08. Not much when you calculate overall he will save nearly $6,000.00 over the course of his policy.
As you can see, birthdays can cost you a lot of money in life insurance premiums. It’s really worth it to check out backdating your life insurance policy! You can save some serious cash!
Planning Your Life Insurance Birthday
If you are looking to purchase life insurance, and you just had a birthday within the last couple months, there’s no need for you to be concerned about policy dating.
That being said, if you had a birthday four to five months ago, you need to apply right now for coverage. Hopefully, you can get your policy in force before your insurance birthday to avoid paying higher premiums.
If not, you’ll be forced to backdate the policy and come up with extra cash to put the policy in force.
NOTE: This may not be something you have spare cash for so it’s important to think about these details when you are shopping for life insurance.
Age is the most important contributor to both term and whole life insurance rates.” How old you are plays the biggest role in how much you’ll pay to purchase a new life insurance policy. Chris Hutley, How Age Affects Life Insurance Rates, Investopedia
Who Should Backdate Life Insurance?
This is kind of a no brainer.
It always makes sense to backdate if you are intending to hold your life insurance policy for the full term.
As you can see in the example above – having to pay out 4 premiums in back coverage costs far less money than sustaining the financial blow of another birthday.
….BUT if you are holding a term policy and think you may only need it for a couple of years, this is not a good option at all because you won’t break even.
Let’s take a look at these numbers right now.
There Are Exceptions for Backdating Life Insurance
If your circumstances are similar to my 60 year old client above and you have to pay out $853.08 in back premiums but are able to take advantage of the lower monthly payment, in three years you will have more than brok