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Wouldn’t it be great if you could revisit your past to correct all those financial mistakes that you had made? Life insurance policyholders can heave a sigh of relief as they have the power to turn the clock back to enjoy benefits of purchasing a policy at a young age.
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This is called backdating. Backdating is possible only in endowment and money-back policies. Let’s understand what it entails.
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
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In simpler terms, insurance backdating means changing the start date of the policy to an earlier one. For example, you bought a life insurance policy on 1st June, 2013 but later you think that the policy would have generated better returns if you had bought it in April 2013. You and your insurance company agree to change the policy to officially start it from April, 2013. In this case, you have backdated the policy. The process of backdating in life insurance is completely legal and does not put the policyholder in any trouble. The premiums for the backdated period are paid in lump sums as per the agreement with the insurer and are usually applicable in money-back and endowment plans.
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Here is how backdating your life insurance can benefit you:
Lower Age, Lower Premiums: While issuing the policy, insurers consider the nearest age of the policyholder. It means if you are 32 years and 7 months old, the insurer will consider your age as 33 years. This nearest age may put you in a higher premium slab. However, if you backdate the policy by 2 months, the insurer will consider your age as 32 years and 5 months only. Now you will be paying lower premiums based on a plan for a 32-year old.
Early Maturity Benefits: Backdating life insurance reduces the tenure of the policy and facilitates early maturity. For instance, if a 30-year life insurance cover bought on March 2000 is backdated to April 1999, the policy would mature on April, 2029 instead of March 2030. In case of endowment policies, this could be beneficial as maturity benefits accrue earlier.
Set the Timing of Payment: There are specific professions where the income flow is not steady. In such a scenario, if an individual accidentally buys a life insurance policy in its off-season, then the policy can be backdated to the period of maximum earnings. For instance, a farmer may have a seasonal income. He would prefer to make insurance payments only after he has received his crop proceedings. In this case, a farmer could backdate the policy to start it in the harvest season.
Align with Milestones: You can backdate the policy to coincide with important dates, such as birthdays and anniversaries. This makes it easy for you to remember your premium due date.
Tax Benefits: Backdating in life insurance allows you to save on your premiums. So if you are backdating to the date before the tax filing timeline, you can save on your lump sum premiums.
Limited Time Frame: You can only backdate till a certain date, usually set at 1st April 2013.
Lump Sum Payment: When backdating your life insurance, you need to pay the premiums for the backdated period in lump sum along with some interest, which can be a lot for some individuals.
Interest Waiver: Some insurers do not charge interest if the life insurance policy is backdated by only a month.
Policy Term Reduction: While backdating the policy may lower your premiums, it can also decrease the policy term.
Different Policy Types: Backdating is usually only offered in life insurance, term insurance, and endowment plans.
Availability: It is important to understand that not all insurers offer the option of backdating their life insurance policies.
You should avoid backdating in the following situations:-
If you are young: Backdating is not very useful for applicants falling in the age group of 20-25 years because there is no major change in premium. It should be opted by people who are buying life insurance at an older age. As insurers levy high premium rates on applicants above 40-year, backdating allows them to make some savings.
If you have a Shortage of Funds: To backdate the insurance policy, you need to pay the premium of the backdated period along with the interest charges. However, you should exercise this option only if you have sufficient funds.
If you have Term Insurance: Backdating a term policy is a futile exercise because the coverage for the previous backdated period becomes irrelevant.
Before backdating a policy, evaluate carefully to ensure that the total savings in premium over the policy tenure is more than the extra premium paid for the backdated period.
Note: Know what is term life policy first and then buy a term plan for your loved ones.
Note: It is suggested to calculate the term plan premium on the term plan calculator online tool by Policybazaar before buying.
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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