Stepped or level premiums: what's the difference?
First of all, we're glad you asked! Most people know that insurance costs increase with age, and that's true for the most common type of premium: stepped (age-related) premiums.
However, if you plan to keep the same level of life insurance that you have now until you're 60 and over, there's another type of premium to consider - level premiums. So, let's look at how it all works with a handy graph and a couple of practical examples.
Stepped and level premiums in a nutshell
As we said, stepped premiums - the type you probably have now - are age-related. They start lower than their level premium counterparts, but they increase as you age. See the graph below and how premiums shoot up between your 50s and 70s?
Level premiums, on the other hand, start higher than stepped premiums at the same age. But unless you change your level of cover, they stay exactly the same throughout your life - until age 80, 90, or even 100 depending on the insurer.
As the graph shows, depending on when you lock in your level cover and your actual lifespan, level premiums could save you thousands of dollars. And most importantly, they would make your life cover affordable for as long as you need it.
You don't even need to switch the whole of your premium to benefit from level insurance: to balance short and long-term affordability, you may choose to switch only a portion and keep the rest of it under stepped premiums.
Our first real-life example is Julie, a 35-year-old non-smoker with $250,000 life insurance. Today, she pays $15 per month in stepped premiums. But when she gets to 65, she'll be paying $222 per month. And at age 80, her stepped premiums will be $1,500 per month - that's $18,000 per year. If Julie had locked in her premiums at 35, at $30.89 per fortnight, she would have saved $20,225 by age 70, $123,345 by age 80, $437,083 by age 90, $1,195,504 at age 100 (without considering inflation).
Our second real-life example, Mark, switched to level premiums when he was 51, locking in his premiums at $84 per month. Now that he's 59, he's still paying $84 per month for his $250,000 life insurance. With stepped premiums, he would have been paying between $124 and $145 per month by now, depending on the insurer. And his premiums would only keep rising. Instead, he'll be paying $84 per month for the rest of his life.
Like to talk about it?
We hope you've found this read quite helpful. If you have any questions, please don't hesitate to call us on 0800 800 400, start a Live Chat or fill in our contact form to get in touch with our team. We can help you run the numbers and check just how affordable a switch to level premiums could be for you.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.