Definition
Backdating a Policy
Backdating is setting a life policy's commencement date earlier than the actual purchase date, usually to secure a lower entry-age premium.
Insurers may allow backdating a policy by a few months (within IRDAI limits) so the life assured is recorded at a younger age last/nearest birthday, locking in a slightly lower premium for the policy's life. The policyholder must pay the premiums for the backdated period.
Backdating can also be used to make the policy fall in an earlier financial year for tax planning. The saving must be weighed against paying extra back-premiums, so it only makes sense when the lower age band yields a worthwhile reduction.
Related terms
- UnderwritingUnderwriting is the process by which an insurer evaluates a risk, decides whether to accept it, and on what terms and premium.
- Premium LoadingLoading is an extra premium an insurer charges above the standard rate to reflect higher-than-normal risk in a particular applicant.
- Premium ModePremium mode is the frequency at which policy premiums are paid, such as annual, half-yearly, quarterly or monthly.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.