How old are you today? So, what’s your insurance age?
Oh, you didn’t know they could be different?
Yep. A little known fact when a consumer buys life insurance is they could qualify for a life insurance age reduction.
This is because life insurance is not necessarily based on how old you are at this exact moment.
Confused? Let’s break it down.
Life Insurance Age Reduction
When you apply for life insurance, your rate is primarily determined by your age, and your health. So if you could modify your age and go backwards to save money, wouldn’t you want to take advantage of it?
Well, you might actually be able to. It’s called a life insurance age reduction, and it’s possible if you’ve just passed a specific date on the calendar. But before we talk about what that day is, let’s discuss how your age is calculated by the insurance company.
Not all companies go by how old you are right now. They may actually advance you to how old you will be at your next birthday, and they do this if you’ve passed your half-birthday. Yes, you read that correctly.
Life insurance is largely based in statistics and mortality tables. In order to have accurate premium schedules, the insurance company has to categorize you into an age group.
In order to make this even more accurate, they put you into the group by which birthday you are closest to!
But before you think, “Well, that’s not very fair!”, I offer this.
Is it fair for the insurance company to call you 35 if you really turn 36 in a week or two? Your body is very close to the age a 36 year old, even if the calendar says you aren’t yet. Let’s just say, hypothetically, everyone knew this. They’d apply a week or two before their birthday to “lock-in” in the lower premium.
If this was the case, nearly everyone who was paying for a 35-year-old policy would actually be much more like 36. This would, in turn, mess up the statistics, and the insurance companies would probably have to raise rates for all ages to combat this. In effect, you’re probably getting a lower rate because of they way they do it.
Life Insurance Age Nearest Birthday
Assuming you understand how it’s calculated, this means when you apply for life insurance age nearest birthday is what you really need to be going by. Remember the specific calendar date I mentioned above?
If you’re past your half birthday, your nearest age is your “insurance age.”
So where does a life insurance age reduction come in?
The insurance company obviously sees how it’s not advantageous to you to have to pay for your nearest age if it’s still an entire 6 months away (a far cry from a week or two, right?)
Because of this, you can actually buy your previous age back. I say buy because you have to pay for it. How is this done? Back dating a policy (it’s legal, promise!).
A life insurance age reduction can happen if you’re willing to assume the life insurance contract as if you had bought it a month ago, not today. In effect, your policy date could be up to thirty days prior to your application date.
A lot of times, our clients ask us if this is even cost effective, especially if they have a sizable premium. Nobody wants to have to start by paying multiple months of premiums, especially if they weren’t even technically covered for a month they have to pay for.
Most of the time, it’s cost effective in the long run.
If funds are tight, it may not be something you can pursue, but if you can afford to pay double up front, it might save you a ton in the coming years of your life insurance policy.
Here’s a crash diet on the numbers:
You can see it’s definitely worth the extra $48 up front in this scenario, so you can save $480 in the long run. Obviously, these numbers were rounded, but you could do this for your own situation to get something comparable. If you want the simple equation to find out how much you’ll save, here it is:
(Initial Premium-Reduced Premium) x (# Years In Policy) x (12)
So if you find yourself looking for life insurance and you’re near your half birthday, consider looking into saving your current age. Ask your agent to help you out if you have any questions. Any knowledgeable agent will know what this is, and how to do it. Some life insurance age reduction requests are unnecessary, as a company will automatically do it, especially if you pay annually.
Quick Tip: Paying annually will save you up to a month’s worth of premium each year!