PSI Life Exam Practice Test

What is backdating on a life insurance policy?

1. Making the policy effective on a future date

2. Making the policy effective on an earlier date than the present

3. Changing the terms of coverage after issuance

4. Modifying premium payments to a later date

The correct answer is: Making the policy effective on an earlier date than the present

Backdating on a life insurance policy refers to making the policy effective on an earlier date than the present. This practice allows applicants to potentially qualify for lower premiums based on their age at the time the policy is considered effective. For instance, if an individual applies for a policy at age 45 but backdates the policy to the date they turned 44, their premiums may be calculated as if they were still 44 years old, resulting in lower costs. The option of making the policy effective on a future date usually pertains to specifying a start date that may be set later than the application date, which is distinct from backdating. Similarly, changing the terms of coverage after issuance relates to policy amendments rather than the timing of the policy's effective date. Modifying premium payments to a later date pertains to payment schedules and does not affect the effective date of the policy itself. Thus, backdating specifically focuses on the retroactive establishment of the policy's effective date.