Back-dated insurance policies: Are these available and should you buy them?

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Back-dated insurance policies: Are these available and should you buy them?
You would have heard of back-dated cheques which the cheque issuer might write and issue in some select cases, likewise back-dated insurance policies can also be bought by the insured in case he feels the need and parties to the insurance policy contract i.e. the insured and insurer agree on it.

Primarily, a back-dated policy reduces the insurance premium liability for the insured over the term of the policy in case the policy is dated back to the time when the age of the insured is lowered to his/her previous age.

Though the back-dating of a policy is possible at a cost which is the interest rate charged by the insurer company for the period for which the backdating is done, overall premium for the entire policy term is reduced substantially. So, if an insured makes a request for back-dating the purchased policy by 3 months time the applicable rate of interest shall be charged for 3 months in the first policy year. And, from the second policy year onwards, the premium amount payable for the policy shall remain the same.

Interest rate charged by the policy back-dating varies across the industry and in a case when the back-dating is done by only 1 month, no interest is levied by the insurer.

Points to remember in case of insurance policy back-dating

Back-dating of the policy is allowed only once at the time when the policy is subscribed to or purchased. And policy back-dating is allowed for any time in the given financial year.

The provision of back-dating the insurance policy is only allowed in case of an endowment policy and a money back policy. Saying this, a unit linked insurance policy cannot be back-dated.

When is back dating of a insurance policy useful?

The foremost rationale for policy backdating is when the premium can be lowered by the considerable tenure over the policy term, nonetheless the liability of the insurance company in respect of the cover also ends at a prior time. Further, difference in incremental premium in case the insured is over 40 years of age is huge, so backdating makes even more sense to reduce premium liability.

If the policyholder wants to date back the policy to the time such that the policy anniversary falls in line with some crucial event in the life of the insured such as a marriage anniversary or birth date. So, that the policy matures around the same time and it also serves as a reminder that the insured needs to service the policy premium.

Also, in a case when the taxpayer wishes to reduces his tax-liability for the year by available deductions u/s 80C and buys insurance policy back-dating can be considered if he intends to pay the premium for the policy in a quarterly or half-yearly or monthly mode in the subsequent policy year.

In case of the pure term cover plan, back-dating of a policy is a bad idea as the coverage available for the back-dated time is of no use for the insured.

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