For what reason may a life insurance producer backdate a life insurance policy

Backdating your life insurance policy allows you to reduce premiums, claim for maturity at an earlier date or even choose an apt payment cycle. Keep reading for more.

Some of the most popular games of the console era offer the ability to turn time back.. Wouldn’t it be great if you could do the same in real life?

Well, we haven’t yet got our hands on the time machine, but for your life insurance policy, it is pretty much possible. If you feel that your policy would have yielded much better returns or would cost you lower premiums if you had bought it a few months earlier, backdating is the answer.

What is Backdating?

As the name suggests, backdating is the idea or concept of putting an older calendar date on a policy or document as opposed to the current date. Consider this, you bought a life insurance policy on the 22nd of August 2017. Yet, you believe that if you have purchased the policy on the 1st of April 2017, you would have benefitted more.

In such a scenario, you and your insurer can agree to change the date of the policy to a previous date such as the 1st of April. This is what backdate life insurance policy looks like. While it largely depends on your insurer, there usually aren’t any charges if you backdate your policy by less than a month or before the month of September.

Are there any advantages?

Absolutely! The following are some of the advantages that you can avail, should you wish to backdate your policy.

• Earlier maturity - When you backdate a policy, you get to reduce the tenure of the policy and in turn, facilitate an earlier maturity date. Consider this for an example, if a 20-year-old life insurance policy was bought in March 2000 and you decide to backdate the same to April of 1999, the policy would mature on April 2019 instead of March 2020. And if you were to choose an endowment plan, it is even better as the accrued benefits start a bit earlier as well.

• Set your payment time - There are quite a few occupations where the flow of money isn’t steady. In the event that a policyholder buys a policy in the offseason, with the help of backdating, they can set things right. Take this for an example, a vendor has his peak season during the winters, but he accidentally buys a policy in the summers, which is his offseason. He can backdate the policy and ensure that he pays the premium during his peak season.

• Coincide with important milestones - Some policyholders wish to backdate their policy so that it coincides with some of their life’s milestones. This ensures that they do not forget paying the premium in the future.

• Lower Premium - It is no secret that the age of a policyholder plays a crucial role in deciding the premium of the policy. In fact, while issuing a policy, insurers usually consider the nearest age for the policyholder. For example, if you were buying a life insurance policy at the age of 27 years and 8 months, your insurer would charge your premium for 28 years. However, if you could backdate the policy by three months, the same policy would now be for a 27 years old individual, thereby reducing your policy premium.

• Earlier Money back - Another advantage of opting for backdating your policy is the reduction of the waiting period. If you have bought a money back life insurance policy in March 2014, you will receive the first money back by March 2019, which is five years. However, if you were to backdate the policy to April 2013, the first return installment would be in April 2018. Instead of waiting for five years, you can avail the cashback in four years and one month.

When you should not backdate

While backdating your life insurance policy is a good option, you should take some caution before exercising it. And if you do not have a life insurance plan in the first place, it might be a good time to start securing your life.

As you traverse through life, you realize certain things that should have been done months or years ago. It could be a financial decision that would have benefited your life or a personal resolution. There may not be do-overs to change your personal mistakes but there certainly are for investment choices. If you are a policyholder, backdating your insurance policy could be a remedy to that delayed decision of buying life insurance. Let’s look at what backdating life insurance is, its advantages and the time you should avoid it.

What is Backdating in Insurance?

Backdating insurance is changing or altering the date you bought the policy to an earlier one. You could be changing the date for a less expensive premium or for some other type of benefit. Backdating life insurance depends on your insurer and won’t cost you much if you are altering the date by a month or changing it to a date before the month of September. For example, if you have bought a policy on 22 June but you find out that purchasing it a month ago would have resulted to give better premium rates then you can backdate it.

Advantages of Backdating Insurance Policy

There are several advantages of backdating your insurance policy, some of them are:

1. Low Premiums

Your age plays a big role in the premium cost and backdating can aid in minimizing it by decreasing your age slab. If you are the age of 28 years and will be turning 29 in three
months, the insurer will consider your age as 29. But if you had bought the policy 2 months ago, you would have been 28 years and 5 months, putting you in the age slab of 28.

2. Early Maturity of Policy

If you have bought life insurance in the year 2020 which will mature in 25 years, you can back date insurance policy for early maturity. By altering the year to 2019, the maturity time will decrease by a year. This is a lucrative option for you as a policyholder.

3. Quicker Money-Back Returns

Money-Back returns mature after every five years in the policy term. So if you buy a plan in 2019, your first money-back will be credited in the year 2024. But if you back date
insurance policy to 2018, you will receive the maturity amount in 2023, a year early than the actual date.

4. Policy Matures During Vital Periods

You may not have bought life insurance at the right time but you can back date it so that it matures during important periods of your life like your child’s college education or a future loan payment date. This eases the pressure and makes your financial situation smoother.

5. Edit the Payment Date

If you do not have a steady flow of income and have a seasonal cash inflow, backdating your life insurance policy helps in altering the payment date to ease up future payment dates.

When to Avoid Backdating Insurance Policy?

Even if the advantages of backdating are fruitful, there are certain instances when you should avoid going for this option. Here are some of them:

1. Term Insurance

In the case of term insurance, backdating your policy is not useful as the aim of buying term plan is to ensure you have a life cover for a fixed period. If you end up backdating it, you lose the life cover for that period of time.

2. Younger Age

Backdating for a less expensive premium may not hold good if you are between the age of 20-25 years. When you are younger, the premium prices do not fluctuate much but tend to increase as your age increases. Hence, using this option will not benefit you at a younger age.

3. Fewer Funds

If you backdate your policy, you have to pay all the premiums of the backdated period. And it does not come cheap and can cost you a lot as your insurer might charge a considerable amount apart from the premiums.

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