Should you buy a back-dated insurance policy? - The Economic Times Should you buy a back-dated insurance policy? - The Economic Times

Backdating on a life insurance policy is the practice of removing, collateral assignment

If the loan is paid off before your death, the lender will no longer be the beneficiary of the death benefit. So, before going for backdating, one has to make sure that the total savings in premiums over the life of the policy is more than the extra premium paid for the backdated period.

A term life insurance policy is a great and inexpensive option, too.

What is 'Backdating'

Incidentally, the interest on the back-dating kicks in only after 30 September. Even so, millions of taxpayers buy life insurance primarily to save tax. Backdating is the shortcut for this process. By far the single biggest benefit that backdating confers on a policyholder is that he ends up paying lower premiums over the plan duration.

Backdating allows you this liberty.

Explaining the Concept of Backdating in Insurance

Till this cut-off date, the LIC does not charge any interest even if the policy is back-dated by months. However, this is a zero sum game.

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Unlike an absolute assignment — which pretty much assigns the policy lock, stock, and barrel with no possibility of reversal — the collateral assignment is a more limited type of transfer. Cash value assignments are more attractive to lenders because the funds can be recovered without the death of the borrower.

It also acts as a reminder for premium payment of your life insurance policy.

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If you die and have only paid off half your loan, the bank will get the remaining balance because they are the beneficiary, and that contract takes precedence over any will. In such a case, the policyholder backdating on a life insurance policy is the practice of removing pay the premiums michael hussey dating pen pal video the current financial year at one go, whereas, for the coming year he can deposit the premiums on the due date, set by his insurer.

Backdating might not prove much useful for person aged 25 or 26 as the premium amount for these two age groups does not have much difference. For example, the difference in the premiums to be paid by a person aged 25 and 26 may not be significant enough to go in for backdating; however, for ages above 40, the incremental premium differential tends to increase.

Smaller banks are certainly an option, as well.

What is the advantage in undertaking such an exercise? In his case, it would be better if the policy is backdated to coincide with this season so that the premium payment can be made when his liquidity position is comfortable.

Suppose you bought a policy on 5th August but end up realizing later; had you purchased the policy two months earlier, you could have got it at better premium rates. Go to your bank and find out what their requirements are and what kinds of loans they offer.

In such a situation, if he backdates his policy to 6 months earlier, then he would be considered getting that policy at an age of An important thing to note here is that backdating works in the favor of policyholders in endowment and money-back plans but in case of term insurance plans, it is quite the opposite.

The Collateral Assignment of a Life Insurance Policy

You can assign one portion of it to one bank and another portion to another bank. The backdating scheme involved moving an effective date for the exercise of stock options from when the options were ' out of the money ' to a date that made the options ' in the money ' in order to allow certain executives to exercise their options profitably.

You can even assign the same policy to multiple banks to secure more than one loan. There is also no charge if the backdating is for less than a month.


Let us assume that you set out to buy an insurance policy today. You can request your insurer to change the official start date to 4th June Of course, it is another way to set a reminder that the premium is due. That means they will be paid before the rest of the death benefit is released to the beneficiaries in this case, your children.

If you die before the loan is paid back, the lender receives the amount that is still owed through the death benefit.

Assigning Life Insurance to Secure a Loan

This is how it works: Once the loan is paid off, you can cancel the policy or keep it going and continue to protect your family. So, the new plans launched by insurance companies in the past months can be bought with any date in the financial year starting 1 April The collateral assignee the bank has priority.

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This also ensures that the maturity of the policy coincides with that important date. When backdating is opted for, it does hold out a significant consumer benefit in the form of lower premiums.

The Collateral Assignment of a Life Insurance Policy

It could be a birthday, wedding anniversary or any other date with emotional value. This means the premium will be due in April Plus, some lenders only require the loan for a certain period of time that coincides with the term of the loan — five years, seven years, oftentimes a year term policy works.

He can pay the premiums for this year at one go, and from next year, he can pay them whenever they are due. Your children are named as the beneficiaries on your life insurance policy.

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A life insurance policy is not the best way to save tax and there are better, more flexible and lucrative options to do so. This, by extension, also means lower premium collections for the insurance company in question. After you die, both the bank and your children make claims with the insurance company for the death benefit.

Furthering your financial education is an investment everyone should make. Never give the bank that full amount.

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Back-dating of a life insurance policy is a perfectly legal and standard practice in the insurance industry. The reason why a policy taken in, say, June cannot be backdated to January is because insurance companies firm up their accounts at the end of the each financial year and, hence, do not permit backdating to the previous fiscal.

IT is that time of the year when insurance companies report fairly brisk business. So, if you want to back-date a policy by three months, be ready to pay an interest of 2.

The Hindu Business Line : Backdating insurance policies

We will look at what backdating is all about, how prospective buyers can use it to their advantage, and what people should remember when they backdate their policy. Backdating comes handy as one can anytime alter the official date to some important date during the year.

For example, if a person who is going to be 40 years old after two months, applies for a life insurance policy at present; the insurer will consider his age as 41 years as per the norms.