What is “Age Nearest” and Why is it Used?
Like many things in life, timing is everything. And this applies with life insurance too. Did you know life insurance companies use the age nearest method to determine your issue age? The issue age is the age the policy premiums are based upon. Generally speaking, the younger the issue age, the lower the premiums.
Why Does Age Nearest Matter?
Age is a primary determinant in life insurance rates, since the greater your age the greater your risk of death. In other words, for the same term life policy, a 48-year old will almost always pay more than a 32-year old, even if they are in equally excellent health.
In fact, you can expect, on average, to pay 8-10% more for every year that you age with that number increasing to 9-12% more per year by your 50s. Of course, for many policies , once you secure your coverage your rates won't change for the life of the policy. They are locked in regardless of future changes to your health, lifestyle or age, which is why buying young is so often emphasized. That simple act of buying early could save you money in the long run.
Most insurance companies use the nearest age method in determining the policy issue age.
The actual age method is often called the age last birthday. For example: If your date of birth is 10/01/74 and today’s date is 09/06/18, your insurance issue age today would be 40. The age nearest method calculates the issue age based upon the age nearest to your policy date. Ex: If your date of birth is 03/01/74 and today’s date is 09/06/18, the issue age would be 41.
What is Backdating?
Most insurance companies allow a policy backdate up to 6 months to save age, if the situation presents itself for the insured’s benefit. Premiums would be required back to the backdated policy date. Backdating a policy may not necessarily be worth the added cost of the premiums.
Backdating a policy date has a financial upside and timing downside. Where the insurer allows backdating, the premium may be calculated at one year lower, generating both an immediate saving and an annual saving on the differential between applicable premiums. Backdating also means that the individual pays for coverage after the fact since he or she was not covered from the date determined by backdating. Moreover, the premium becomes due annually on the earlier date.
Also published on Medium.