Finance Department


Date of this Version


Document Type



Journal of Actuarial Practice 11 (2004), pp. 63-78


Copyright 2004 Absalom Press


Backdating is a common (and legal) practice in the U.S. whereby a life insurance contract bears a policy date that is prior to the actual application date. This practice often results in the opportunity for some insureds to reduce the annual premium paid. Using cash flow projections and U.S. mortality, lapse, and interest rate data, we provide a model of the actuarial value of term life insurance backdating. Results indicate that the benefits to the applicant of backdating a term life insurance policy increase as the applicant age (and hence premium) increases. Increasing mortality, lapse, and interest rates, as well as increasing the length of the backdated period decreases the potential benefits of backdating. Finally, backdating appears to serve as a substitute for a finer partitioned pricing structure in the life insurance industry, as a risk-hedging mechanism for insurers, and as a risk-arbitrage tool for consumers.