Backdating Definition
The Dictionary of Insurance Terms and Definitions
With an insurer's permission, a life insurance applicant can have his or her policy issued with an effective date that is actually earlier than the time of application. This practice is known as backdating.
The effective date of a life insurance policy is the date that the policy goes into force. The price you pay for life insurance coverage is based on the age of the insured at the time of the effective date ("original age"), so it is often cost-effective to enter into a life insurance policy early. This is true even when it means that you'll be facing more premium payment periods. Just as it may be cost-effective to enter into a policy early in life, it may be cost-effective to roll back the start date of a life insurance policy (i.e. backdate it) so that the policy's original age is lower.
Here's an example, using nice, round numbers (not a likely example): Suppose that a 25-year term life insurance policy at age 45 costs $25/month. Therefore, over the course of the entire policy, it would cost $625, ($25 · 25 = $625). Now let's backdate the policy 5 years so that the proposed insured is 40 years old at the effective date. At this younger age, the cost is only $20/month. The total cost of the policy, then, is $500 ($20 · 25 = $500). Even if we made it a 30-year policy (to make up for moving the effective date 5 years into the past), the total cost would still be less than the original price: $20 · 30 = $600.
In reality, you probably won't be able to backdate your policy as much as five years. Even if you could find a willing insurer, state laws restrict what insurers are permitted to do, and most states limit backdating to a maximum of six months. That means that at most, you could only roll back your policy's original age by one year (e.g. if your insured is 40 but had a birthday less than six months ago, your policy could be based on age 39).
Backdating doesn't necessarily mean that you'll save money. It could be that the extra six months of premiums that you're required to pay is more expensive than the money you'll save by applying under a lower age. You'll probably save money, though.
