This Simple Trick Could Save You Hundreds on Life Insurance

You can pay to rewind the clock, at least when it comes to life insurance.

Backdating your life insurance policy can help you lock in a lower age — and a lower rate — before your coverage starts. While you’ll pay for a few months of “ghost coverage” upfront, the discount on your premiums stays with you until your policy ends. Over 20 or 30 years or even a lifetime, this can add up to significant savings.

Here’s how to do it.

Figure out your ‘insurance age’

Your age is one of the main factors life insurance companies use to calculate your premium. The issue? Many insurers round up to determine your “insurance age,” which could mean they look at you as an older applicant.

Look at your calendar and see how far away your next birthday is. If it’s more than six months away, your insurance age is the same as your actual age. However, if it’s in less than six months, you’re officially a year older in the eyes of many insurers. In other words, if your birthday is Sept. 1, your “insurance age” goes up on March 1.

If you’re already past your half-birthday, Derek Mazzarella, a certified financial planner with Gateway Financial Partners in Glastonbury, Connecticut, recommends backdating your life insurance policy to lock in a rate at that younger age.

“Doing it from 24 to 25 is not a huge jump, but as you get higher up on the age spectrum, that can matter more,” Mazzarella says. But if your monthly premium is going up by $25 on your half-birthday, that’s an extra $6,000 over the course of a 20-year term.

Determine if backdating is worth it

Backdating puts the effective date of your policy in the past, before you applied for coverage. Many insurers will allow you to backdate your policy up to six months, as long as you pay for the extra months of “ghost coverage.”

It might sting to pay for coverage you didn’t get, but it’s often worth it, says Matt Mims, owner of life insurance brokerage LifeStein.com. “You’re coming out of pocket more because you’re paying for [several] months of premium up front,” he says. But in the grand scheme of things, you could save money.

To decide if backdating is right for you, you’ll need to apply for a policy and get two life insurance rates from the insurer: a standard premium and a backdated premium. Mazzarella says after all the underwriting is done and insurers have evaluated your risk, they typically send you an offer with both premium options.

From there, you can do the math. Compare the amount you would save over the life of the policy to the upfront cost of backdating. In the example below, you can see that while backdating the policy two months would cost $88 now, you would come out ahead with a savings of $960 over the life of the policy.

Source: Sample rates from LifeStein.com.

These rates are typical for a healthy male nonsmoker buying a $1 million, 20-year term life policy. Applicants buying larger policies, or those who don’t qualify for the lowest rates, can stand to save even more.

Lock in your age and health for the lowest premiums

Premiums increase with age every year, which is why locking in a rate sooner rather than later can pay off. If you’re relatively young and healthy, Mims says, securing your family’s financial future could cost you as little as a Netflix subscription. After that, the premium jumps just get bigger and bigger.

And age isn’t the only factor determining your life insurance premiums. There’s your health to consider, which can take a turn at any time. And while backdating can lower your age, it can’t change a diagnosis.

Mims has seen this firsthand with a 35-year-old client in Alabama. “For what he knew, he was in excellent health,” Mims says. But then he did his life insurance medical exam. “His A1C was elevated. He figured out he was diabetic, and that drastically increased his premiums.” If he’d locked in a preferred rate before his health changed, his premiums would’ve been three times lower.

So when is the best time to buy life insurance? If you're thinking about it, there’s a need crossing your mind, Mims says. Now might be the best time to start shopping around.