Know all about Backdating in Life Insurance

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 on paper might seem a great idea, there are a lot of instances when it is not. The following are some scenarios where you should not opt to backdate your life insurance policy.

• Term Insurance - If you have bought a term insurance plan, then backdating your policy is completely futile. The whole point of buying a term plan is to offer your cover for life over a fixed tenure. And if you are backdating the policy, you are essentially wasting that period.

• Lack of funds - Backdating your policy by a year does not come cheap. In fact, depending on your insurer, you might be charged a considerable amount for the same. Some insurers charge as much as 10% for backdating your policy by a year. Thus, you should only look for backdating if you have enough funds at hand.

• Age on your side - The concept of backdating might not yield appropriate benefits if you are young. Policyholders or potential buyers in the age group of 20-25 years can in fact avoid backdating. Since in that age, the premium price fluctuation will not make much of a difference. However, as you grow old and the premium prices go up, backdating can help you save considerably.

Which life insurance policies should you backdate?

While it is true that you can backdate life insurance policies, it might not be applicable to all the policies. And in some cases, it will not do a lot of good to you. Being aware of them will help you better decide whether or not to backdate certain plans. As discussed above, backdating your term insurance plan might not be the smartest of decisions. Similarly, insurers will not allow you to backdate any plan that is market-linked. In such cases, the only plans where you can successfully backdate your life insurance policy are money-back plans and endowment plans.

Another important thing to keep in mind is some leading insurers only allow accumulation of interest and benefits on and after the 30th of September. Thus, if you backdate your policy much earlier than the 30th of September, it might not be required in the first place.

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.