What Happens When an Insurance Policy Is Backdated?

Life insurance products sometimes include the option of backdating the policy. In principle, life insurance backdating is relatively straightforward. It means the start date of the coverage is retrospectively dated to before the person purchased the product. Much may depend on the format and type of life insurance you wish to buy, your age, the impacts backdating may have on your premiums, and the terms of the insurance company and product; backdating is not always available for insurance policies.

A typical reason a life insurance applicant may request that their plan be backdated is that they are approaching an age when they will be perceived as higher risk and, therefore, expect to pay higher insurance premiums. However, insurance premiums are payable for the length of the backdated period, which means the cost of backdating could outweigh the ongoing cost savings.

Backdating enables life insurance applicants to request the insurance company implement the coverage effective from an earlier date. There are varied rules and regulations about this backdated policy practice, and some states implement a maximum backdating period of six months. A lot may also depend on the insurance company and the type of coverage as some companies do not offer any backdating options whatsoever or will implement their own policies about when and how this can be requested.

The applicant normally needs to back-pay the associated premiums for the duration, calculated based on the agreed premium multiplied by the months lapsed since the effective policy purchase date. This means that backdating may only be beneficial if the premium reduction exceeds the cost of paying a bulk upfront premium for the backdated period.

For most applicants, backdating makes sense if they are older and of an age where their insurance premiums will rise substantially following the underwriting process. In this scenario, the savings available may be more viable. Still, younger life coverage buyers may find that the premium changes very little, if at all, and results in a short-term financial burden.

The normal first step in deciding whether to request a life coverage policy be backdated is verifying whether the insurance company is willing to consider this and then comparing the current and retrospective premiums. Standard underwriting processes in the insurance calculate your coverage risk based on the age you are closest to.

Backdating your policy may mean that:

• If you are more than six months past your previous birthday, you can request that your actual age be used in the insurance documentation. This means your premiums will be based on your age at your last birthday rather than your current insurance age, calculated against the birthday you are closest to.
• A life insurance applicant, for instance, who is forty-nine years old but is within five months of their next birthday would typically be assessed as age fifty for insurance coverage purposes.
• Backdating that policy to their previous birthday would mean the same individual is assessed as if they were forty-nine, potentially affecting their insurance premiums.

Insurance companies must still work through the eligibility and assessment processes to offer valid coverage. They should advise if backdating may adversely impact elements such as the account value of a life insurance product–where relevant. Some life insurance features, including the death benefit, could also be affected, making it important to collate all the information before making an informed decision.

Variations in the availability and restrictions on backdating are partially related to state-specific laws. They can also be linked to the policies and flexibility offered by the insurance company, and applicable life coverage product.

Most products that permit backdating limit this to the applicant's previous birthday or a maximum of six months. Eligibility for a backdated policy may also depend on your overall risk profile, where insurance companies will need to assess:

• Your medical history
• Recorded lifestyle choices
• Health records and exam

Rather than offering an automatically lower premium based on your age at your last birthday, the level of risk associated with the insurance will influence the cost of coverage.

There are, of course, positives and negatives to backdating a life insurance policy. As we've noted, the main attraction is the potential to reduce your premiums by implementing your insurance as if you are younger.

Insurance products that offer static or confirmed premiums could be advantageous if those premiums are agreed upon before you reach an age that would normally mean your premiums become more expensive going forward. Other applicants request their insurance be backdated as a form of cash flow management. They pay up to six months of coverage upfront at a possibly lower rate, aligning that cost with a fluctuating or seasonal income.

Backdating is widely considered worthwhile only for applicants with the finances to cover several months’ worth of premiums and who are about to reach an age that is a threshold in insurance risk assessments. There are also risks; for example, a backdated term life insurance product could mean the coverage costs more in the future, and the policyholder is paying for benefits they could not use for the duration of the backdated period.

As always, it is important to conduct proper research before making any decisions and ensure that backdating is beneficial based on your coverage requirements, age, financial position, and the type of life insurance you wish to purchase.

What Is Backdating a Life Insurance Policy?

In short, a backdated life coverage product allows the applicant to initiate the policy from an earlier age, normally because they can access a lower premium.

Is There a Maximum Backdating Period on a Life Coverage Product?

States, insurance companies, and products have varied policies. The norm is to allow life coverage applicants to backdate their policy by up to six months or the date of their previous birthday.

Can I Backdate Any Life Insurance?

Some life insurance products and providers may offer premium reductions that make the upfront cost of backdating beneficial, but this is not a universal option and could impact your product features, insurance account value, and cost of coverage.