— B —

Backdating: Backdating a life insurance contract can result in lower rates, and thus can result in lower premiums. The practice of backdating involves requesting an effective date that is earlier than the actual policy issue date such that the policy is priced using rates based on earlier/younger-age and lower Cost of Insurance (COI) rates. Because COI rates and corresponding premiums are lower for younger insureds than for older insureds, backdating can reduce policy costs and required premiums. The advantage of backdating is greater for older insureds than younger insureds, but can result in costs/premiums which are as much as 4% to 8% lower in many age ranges. Backdating is governed by each respective State Department of Insurance (DOIs) and is generally limited to a maximum of 6 months (certain states allow a policy contract to be backdated up to a year). While backdating can result in lower rates/premiums in the right circumstances, backdating will NOT always result in lower rates/premiums. In fact, backdating can actually result in higher rates/premiums due to the requirement to pay premiums/policy charges for the period before insurance coverage actually begins (i.e., between the backdated effective date and the actual policy issue date). As such, the benefit/cost of backdating can be measured by comparing A) the present value of future premium/cost savings derived from lower, younger-age backdated rates versus B) the sum of premiums/costs between the backdated effective date and the actual policy issue date. If the savings from A are greater than the cost of backdating in B, then there would be a financial advantage to backdating, and backdating should be considered. Conversely, if savings from A are not more than sufficient to pay for back-premiums/charges in B, then a back-dated contract would cost more, and the policy should be dated with a current effective date (i.e., an effective date that is the same as the policy issue date). Extra care should also be exercised in examining a backdated quote due to the fact that certain quote/illustration systems do not provide an input field for an alternative effective date, and therefore do not automatically perform the above A versus B backdating calculations. To determine whether or not a quote/illustration of hypothetical policy values accurately reflects backdated rates/results, look to either the Detailed Policy Accounting pages for Universal Life (UL) and Variable Life (VL or VUL) policies and/or the premium due dates for Whole Life (WL) and Guaranteed-Death-Benefit (GDB) policies. A properly calculated UL or VUL quote/illustration will reflect interest/investment earnings for only those months between the policy issue date and the end of the first full policy year. On the other hand, an incorrectly calculated UL or VUL quote/illustration will erroneously reflect interest/investment earnings for the entire first policy year, thereby overstating interest/investment earnings by the number of months which the effective date preceeds the issue date.

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