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Your half-birthday present from the Life Insurance Companies

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Happy half-birthday to you!
Happy half-birthday to you!
Happy haaalf-biiiiirthday to yoooooooou….
And you look like one to!!

Ever wonder how much life insurance premiums go up as we get older? The answer is that at younger ages, a single year age difference won’t make a big difference in the annual premium. At older ages, starting at roughly age 50 or so, every year you’re a year older your annual premiums will increase noticeably. Basically, the older you are, the premiums become more expensive *faster*.

Consumer often see smaller differences at younger ages and see it as not a big deal. It should be a bigger deal than it is at first glance though. Those premiums increases aren’t over just one month. They’re every month for the entire duration of the policy. A few dollars every month for 20 years can cost a lot over the term.

The second misconception is that there’s a rush to get a policy in place by your birthday. It turns out that this isn’t the case. Insurance companies use your nearest birthday for the age calculation, so six months after your birthday – or at your ‘half-birthday’ – your premiums will go up on a new policy because you’ll be a year older. Higher premiums are your half-birthday present from life insurance companies. Not as much fun as a real birthday it turns out.

There’s a fix that may make sense though. There’s a practice in the insurance industry called backdating. Basically you set the start date of your policy back a month or two, to a time before your half birthday. Lets say your age increase is in August and you purchase a policy in September. Paying the additional premium as if the policy had actually started in August (i.e. an extra month’s premium) may be a cheaper route. It’s simply a matter of comparing the cost of one month’s premium and the reduced longer term premiums from being a year younger, with the long term cost of higher premiums at a year older. Generally at younger ages backdating won’t make financial sense, at older ages it very well may. Companies will generally only let you backdate a maximum of 3 months.

One further ‘gotcha’ in all this though. The date of the policy is the date the policy is issued and is not the date you apply. Given that life insurance policies generally take 60 days or so to get issued, it’s best not to wait until it’s almost your half-birthday. Best to start immediately.


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