What Is Save Age in Life Insurance?
Learn how "save age" is uniquely calculated in life insurance. This key concept can significantly influence your premiums and policy costs.
When considering a life insurance policy, understanding the term “save age” is important. This specific term refers to the age an insurance company uses to calculate your premium, which may not always align with your actual chronological age. It represents a method used by insurers to determine policy specifics, including the cost of your coverage.
Understanding Save Age
“Save age” is a concept used by life insurance companies to establish the age that dictates your premium rates. This age often differs from your current chronological age because most insurers employ a method known as the “nearest birthday” rule. This rule considers you to be the age of your upcoming birthday if you are within six months of that date. For example, if you are 39 years and seven months old, and your next birthday would make you 40, under the “nearest birthday” rule, you would be considered 40 for insurance purposes.
Conversely, if you are 39 years and five months old, you would still be rated as 39 because you are closer to your last birthday. This approach is widely adopted by the majority of life insurance companies. While some insurers may use your “actual age,” which is simply your age on the day of application, the “nearest birthday” rule is the prevalent standard in the industry. The distinction between these age determination methods can significantly influence the premium rate you are offered.
Calculating Save Age
Calculating your save age under the “nearest birthday” rule involves determining which birthday, past or future, you are closest to. If your application date falls within six months of your next birthday, your age is typically rounded up to that upcoming age. For instance, if you are 35 years and 8 months old, you are closer to turning 36, and thus your save age would be 36.
Conversely, if you are 35 years and 4 months old, you are still closer to your 35th birthday, and your save age would remain 35. To utilize a younger save age, particularly when you are close to the six-month mark of your next birthday, insurers often allow “backdating” the policy’s effective date. This means setting the policy’s start date to an earlier time, typically up to six months prior to the application, to secure a lower age for premium calculation.
Impact on Life Insurance
The save age directly affects the premium rates for a life insurance policy. Since premiums are largely based on the perceived risk to the insurer, a higher save age generally translates to higher premium payments. As individuals age, the likelihood of health issues increases, which elevates the risk for insurance providers, leading to increased costs. On average, life insurance premiums can increase by approximately 8% to 10% for every year of age. This annual increase can sometimes be even higher, reaching 12% or more, particularly for applicants over 50.
Securing a policy at a younger save age can result in substantial long-term savings over the duration of the policy. While backdating a policy to achieve a younger save age may require an upfront payment of premiums for the backdated period, the cumulative savings over many years often outweigh this initial cost.