As term life insurance experts, we are knowledgeable well beyond just comparing life insurance quotes online (though we do that too!). We have advanced strategies that can save you hundreds or thousands of dollars over the course of your term policy. Here are a few of them that you can evaluate:
Backdating
Every year you get a year older, life insurance premiums increase. We all know that, but is there a way to counter this? Yes — it's a process called backdating and can save you huge money over the entire course of your life insurance policy. Backdating works like this: You apply for life insurance, but request that the policy be technically issued at a prior date. This has two impacts: First you have to start paying premiums from that date (a tradeoff). Secondly, the policy starts with your age as of that date — which will of course mean your policy premiums are lower. In other words, you can have the policy start at a date just before to your last age change. Pay the premiums from that date — but the entire rest of the duration of the policy will have premiums based on your earlier age. Note: Some companies change your age for insurance purposes on your birthday. Other companies change your age for insurance purposes to your next year older at six months past your birthday. So there are two times you need to check if backdating makes sense — just past your birthday, and just past six months past your last birthday.
Example for a company that uses your birthday for insurance age: Policy is issued May 6, 2024. Birthday April 6, 1983, seeking $1,000,000 Term 20. Without backdating: Premiums would be $101.70 for 20 years. With backdating: Policy is issued May 6, but we backdate the policy (start the effective date) as April 5, 2024 — before your birthday. You pay premiums of $92.70 for 20 years, however your first payment will be 2×$92.70 (On May 6, you pay premiums from April 5-May 5, plus your first months premiums starting on May 6). Tradeoff: You pay one extra month's premiums of $92.70, but then pay $92.70 for the next 20 years — a savings of $108/year for the next 20 years!
Example 2 for a company that uses your 'closest' birthday for insurance age, i.e. you become a year older 6 months after your birthday: In this example, if you were born January 1, and it's June 30th today, you should compare premiums of backdating the policy to May 30th — which would make you one year younger for your policy.
In this example, you'd be saving $108/year for 20 years!
When does backdating make sense?
Most life insurance consumers will consider backdating two months to be a reasonable tradeoff. Longer than that and most Canadians are not willing to pay the increased initial premium. If your birthday was in the last two months (companies that use your actual birthday for age) or if your birthday was in the last 6-8 months, then you should compare the premiums from backdating.
How to check backdating
If backdating makes sense for you, run a quote using our online quotes to get a current age quote. Then add one to your year of birth and run a second quote. You'll see the decreased monthly premiums, and can compare it to the number of months additional premiums you need in order to backdate the policy to just before your age change.
Term layering
Most Canadians seeking term life insurance are looking for level coverage for the duration of the term — often 10, 20 or even 30 years. But what if you want a decreasing amount of coverage? Well, there's two ways to accomplish this. For our example, let's look at a 40yo Male Nonsmoker seeking $1MM of coverage for 10 years, then $500,000 of coverage for the subsequent 10 years.
1) First way to solve this, is to obtain a term 20 policy of $1MM. After 10 years reduce the coverage down to $500,000. Premiums years 1-10: $92.70. Premiums for years 11-20: $49.05.
2) Second way is term layering. In this strategy, you purchase two layers of coverage — $500,000 of Term 10, and $500,000 of Term 20. Premiums years 1-10: Term 10: $28.80 + Term 20: $49.05, Total: $77.85.
Total coverage in the first 10 years is still $1MM — since there's a term 10 and a term 20 policy in force both for $500,000. At the end of 10 years, the Term 10 is cancelled, reducing the coverage and the premiums. Premiums years 11-20: $49.05.
The difference? With term layering you're saving $14.85 or $178.20/year for the first 10 years!
When does term layering make sense?
Use term layering if you assume that you need a declining amount of life insurance coverage over time.