What Is Level Life Insurance - And How Does It Compare to Stepped Cover?

When you take out life insurance in New Zealand, one of the first decisions you'll face is how you want your premiums structured. There are two options: stepped cover and level cover. They both provide the same core protection — a lump sum payout if you pass away or are diagnosed with a terminal illness — but they work very differently in terms of what you pay and how that changes over time.

This guide explains how each structure works, how they compare, and what factors are worth thinking about when deciding between them.

In This Article

• What Is Stepped Cover?
• What Is Level Cover?
• How Stepped and Level Cover Compare
• Which One Costs Less Overall?
• Factors Worth Thinking About
• Can You Switch Between Stepped and Level Cover?
• Frequently Asked Questions
• Key Terms, Explained

What Is Stepped Cover?

Stepped cover — also called rate for age cover — is the most common premium structure for life insurance in New Zealand. With stepped cover, your premium is recalculated every year based on your age at renewal. Because the statistical likelihood of a claim increases as you get older, your premium steps up each year to reflect that increased risk.

The result is that stepped cover starts out as the cheaper option — often significantly so — but the cost increases every single year for as long as you hold the policy.

How Stepped Premiums Work in Practice

Here's a simplified illustration of how stepped premiums behave over time:

• At age 30, your annual premium might be relatively low
• By age 45, that same policy with the same sum insured could cost considerably more
• By age 55 or 60, premiums on a stepped policy can be significantly higher than they were when the policy started

The increases aren't uniform — they tend to accelerate as you move into your 50s and 60s, because the actuarial risk of a claim increases more steeply at those ages.

What Stepped Cover Is Typically Used For

Stepped cover is often used when:

• You want the lowest possible premium cost right now
• You have a shorter-term need for cover — for example, while your children are young or while you're paying off a mortgage
• You expect your financial obligations to reduce over time, meaning you may reduce or cancel your cover before the premiums become expensive
• You're younger and budget is a key consideration

Because stepped premiums start low, they're the default choice for many people taking out cover for the first time — particularly younger policyholders where the initial cost difference between stepped and level is most pronounced.

What Is Level Cover?

Level cover is a premium structure where your premium is set at the time you take out the policy and stays the same — it doesn't increase with age. The insurer calculates a premium that accounts for the increasing risk across your expected policy lifetime and spreads that cost evenly, rather than recalculating year by year.

Because the insurer is pricing in longer-term risk from day one, level cover premiums start out higher than stepped cover — often significantly so for younger policyholders. But because the premium doesn't increase with age, the gap narrows over time, and at some point level cover becomes the cheaper option on an ongoing basis.

How Level Premiums Work in Practice

• Your premium is set when you apply and stays fixed (subject to the conditions below)
• It doesn't increase just because you've had a birthday
• Most level cover policies remain level until age 65 or 80, depending on the insurer — after which they convert to stepped premiums
• If you increase your sum insured, your premium will increase to reflect the higher cover amount — but the existing portion stays level

When Level Premiums Can Change

While level premiums don't increase with age, there are circumstances where they can change:

• You increase your sum insured — the additional cover is priced at your current age
• Insurer-wide premium reviews — in some cases, insurers can apply across-the-board premium adjustments to their book of level policies, though this is less common than the annual age-based increases seen in stepped cover
• Indexation — if your policy includes an automatic inflation adjustment, both your sum insured and premium will increase annually in line with the Consumer Price Index
• Policy expiry age — once the level period ends (typically at 65 or 80), the policy may convert to stepped cover or simply expire

What Level Cover Is Typically Used For

Level cover tends to be considered when:

• You want long-term premium certainty and predictability
• You're planning to hold the policy for many years — ideally 15 years or more
• You're taking out cover at a younger age and want to lock in a rate before premiums increase with age
• You want to avoid the scenario where premiums become unaffordable later in life, potentially forcing you to reduce or cancel cover when you still need it

One of the most common reasons people consider level cover is to avoid premiums becoming unaffordable over time. Our article on how to keep your life insurance affordable for life explores this in more detail.

How Stepped and Level Cover Compare

Here's a side-by-side comparison of how the two structures differ across the key factors:

	Stepped Cover	Level Cover
Initial premium	Lower — often significantly so for younger policyholders	Higher — priced to account for lifetime risk upfront
How premiums change	Increases every year with age	Stays the same (until the level period ends)
Long-term cost	Can become expensive, particularly in your 50s and 60s	Becomes comparatively cheaper over time
Premium predictability	Less predictable — increases each year	Highly predictable — same amount year after year
Best suited to	Shorter-term cover needs or budget-conscious buyers	Long-term cover with a focus on cost certainty
Common use case	Cover while raising a family or paying a mortgage	Locking in a rate early for long-term protection
Expiry	Continues as long as premiums are paid (up to policy expiry age)	Level period typically ends at age 65 or 80, then converts to stepped
Flexibility	Easy to reduce or cancel as obligations reduce	Best value when held long-term — less benefit if cancelled early

Which One Costs Less Overall?

This is the question most people want answered — and the honest answer is that it depends on how long you hold the policy.

If You Hold the Policy for a Short Period

If you take out cover and cancel it within five to ten years, stepped cover will almost always have cost you less in total. Because stepped premiums start lower, the cumulative cost over a short period is less than you'd have paid with level cover, even accounting for the annual increases.

If You Hold the Policy for a Long Period

If you hold the policy for 15, 20, or more years, the picture often reverses. Level cover's consistent premium means you're paying the same amount every year while the stepped policy's premiums are accelerating upward. At some point — often in the early-to-mid 50s for someone who took out cover in their 30s — the cumulative total paid under a stepped policy overtakes the cumulative total under a level policy.

The Crossover Point

The age at which level cover becomes cheaper than stepped (on a cumulative basis) varies depending on:

• The age you took out the policy
• The sum insured
• The specific insurer and their pricing
• How premiums are structured by that insurer

Running a quote that shows both structures side by side is the most reliable way to see where the crossover point sits for your specific circumstances.

For a broader look at how the choices you make when setting up a policy affect what you pay, read our article on how different options affect your life insurance premium.

Factors Worth Thinking About

Beyond the simple cost comparison, there are a few other factors that are worth thinking about when choosing between stepped and level cover.

How Long You Expect to Need Cover

If your primary reason for having life insurance is to protect your family while your children are young and your mortgage is being paid down, a stepped policy might suit you well — you can reduce or cancel cover once those obligations reduce, before premiums get too expensive.

If you want cover that remains in place well into your 60s or beyond — for example, to protect a surviving partner regardless of age, or to cover business obligations — level cover offers more predictable long-term costs.

Not sure how long you might need cover for? Our article on when you need life insurance looks at the key life stages where cover is most commonly reassessed.

Your Current Budget vs Long-Term Affordability

For many people — particularly those taking out cover in their 20s or early 30s — the initial premium difference between stepped and level cover is substantial. Stepped cover's lower starting premium makes it more accessible right now.

However, the risk with stepped cover is that premiums can reach a point where they feel unaffordable, which can lead people to reduce their sum insured or cancel cover at exactly the time in life when they may still need it. Level cover removes that risk by locking in a consistent premium from the start.

Life Stage and Financial Obligations

Your life stage matters. The financial obligations that drive the need for life insurance — a mortgage, young children, a partner who depends on your income — tend to change over time. For some people, the need for cover is highest in their 30s and 40s and reduces significantly by their late 50s. For others, obligations remain significant well into later life.

Our article on how life's big moments affect your insurance needs is useful for thinking through how your cover requirements might shift over time.

Tax and the Value of Fixed Costs

For business owners or self-employed people who hold life insurance through a business structure, the predictability of level premiums can have practical advantages for budgeting and financial planning. This is a complex area and independent financial or tax advice is recommended for anyone in this situation.

The Sum Insured You Need

The higher your sum insured, the more pronounced the initial premium difference between stepped and level cover. For high sum insureds, the initial cost of level cover can be significant. For more modest cover amounts, the gap may be smaller and level cover more accessible from the outset.

If you're still working out what sum insured is appropriate, our article on how much life insurance you need walks through the key factors.

Can You Switch Between Stepped and Level Cover?

This is a common question — and the answer is that it depends on the insurer and policy.

In most cases, switching from stepped to level cover (or vice versa) is not simply a matter of contacting your insurer and asking them to change the structure. Because level cover is priced based on your age at the time the policy starts, switching to level cover later in life means the premium is calculated at your current age — which may make it significantly more expensive than if you'd taken out level cover when you were younger.

Some insurers may allow a premium structure change under certain conditions, but this typically involves reassessment and potentially a new underwriting process.

Taking Out a New Policy

Some people hold both a stepped and a level policy simultaneously — for example, a stepped policy for a shorter-term need and a level policy for longer-term protection. Others cancel an existing stepped policy and take out a new level policy, though this involves new underwriting and any health changes since the original application will be assessed.

If you're considering making changes to an existing policy, our article on whether you can cancel or change your life policy covers what's involved.

Switching Insurers

It's also possible to switch insurers entirely — taking out a new policy with a different provider. This can sometimes provide access to better rates or more suitable policy terms, but it involves a full new application and underwriting process. Any health changes since your original policy was taken out will be assessed by the new insurer.

Our article on switching or replacing your insurance is worth reading before making any changes — it covers what you could gain and lose in the process.

Frequently Asked Questions

What is the difference between stepped and level life insurance?

Stepped cover premiums increase every year as you get older, starting lower and rising over time. Level cover premiums are set when you take out the policy and stay the same year after year (until the level period ends, typically at age 65 or 80). Both provide the same core protection — they differ only in how and when you pay for it.

Which is cheaper — stepped or level cover?

Stepped cover is almost always cheaper initially. Level cover becomes comparatively cheaper over time. If you hold a policy for a long period — typically 15 or more years — the cumulative cost of a level policy often ends up lower than the cumulative cost of a stepped policy for the same sum insured. The exact crossover point depends on your age, sum insured, and the specific insurer's pricing.

At what age does level cover become cheaper than stepped?

There's no single answer — it depends on the age you took out the policy, your sum insured, and the insurer. As a general guide, for someone who takes out cover in their early 30s, level premiums often become comparatively cheaper somewhere in the early-to-mid 50s on a year-by-year basis, and the cumulative break-even point varies. Running a quote that shows both options side by side is the most reliable way to see this for your specific situation.

Does level cover ever increase in price?

Level premiums don't increase with age — that's the key feature. However, they can change in other circumstances: if you increase your sum insured, if your policy includes indexation (automatic inflation adjustments), or if the insurer applies an across-the-board review of their level premium rates. These increases are disclosed in policy terms.

What happens to level cover when I turn 65 or 80?

Most level cover policies in New Zealand have a level period that runs until age 65 or 80, depending on the insurer and policy. After this point, the policy typically either converts to stepped premiums or expires. The exact terms are set out in the policy wording, so it's worth checking when the level period ends when you compare policies.

Is stepped cover better for younger people?

Stepped cover's lower initial premium makes it more accessible for younger people, particularly those on tighter budgets. However, "better" depends on how long you plan to hold the policy. If you're young and intend to hold cover for 20 or more years, level cover taken out at a young age locks in a relatively low rate for the life of the policy — which can represent good long-term value.

Can I have both stepped and level cover at the same time?

Yes — it's possible to hold multiple policies, including a combination of stepped and level cover. Some people structure their cover this way deliberately, using stepped cover for a shorter-term need (such as while paying a mortgage) and level cover for longer-term protection. Each policy operates independently.

What happens if I can't afford my stepped premiums as I get older?

If stepped premiums become unaffordable, you have a few options: reduce your sum insured to bring the premium down, switch to a new policy (which would involve new underwriting at your current age), or cancel cover. Reducing sum insured is the most common approach when premiums become a stretch. This is one of the reasons some people choose level cover from the outset — to avoid this scenario.

Does the type of premium structure affect what's covered?

No — stepped and level cover refer only to how your premium is calculated and how it changes over time. The underlying cover — what's included, what's excluded, the sum insured, and the claims process — is the same regardless of whether you choose stepped or level premiums. The structure is a pricing decision, not a coverage decision.

Can I switch from stepped to level cover?

In most cases, switching from stepped to level cover isn't straightforward. Level premiums are priced based on your age at the time the policy starts, so switching later in life means the level premium is calculated at your current age — which can make it expensive. Some insurers may allow a change under certain conditions, but this typically involves reassessment. Taking out a new level policy is one option, though this involves full underwriting at your current age and health status. Our article on changing your life insurance policy covers what's involved.

How do I know which option is right for me?

The most useful starting point is to run a quote that shows both options side by side for your age, health profile, and sum insured. That gives you real numbers to compare rather than general principles. The LifeDirect team is also available to walk you through the options — call us on 0800 800 400 or start a live chat online.

Does stepped or level cover affect my ability to claim?

No — the claims process and eligibility criteria are the same regardless of premium structure. Both stepped and level policies pay out the sum insured on a valid claim (death or terminal illness diagnosis with 12 months or less to live), subject to the same policy terms and exclusions.

What other types of life insurance decisions should I be aware of?

The stepped vs level decision is one part of setting up a life insurance policy. Other key decisions include how much cover to take out, who the policy owner should be, whether to include indexation, and what add-ons (if any) to include. Our main guide on what is life insurance covers all of these in detail.

Key Terms, Explained

Term	What it means
Stepped Cover	A premium structure where your life insurance premium increases every year as you get older. Also called rate for age cover.
Level Cover	A premium structure where your life insurance premium is set when you take out the policy and stays the same year after year, until the level period ends.
Rate for Age	Another name for stepped cover — the premium is recalculated (stepped up) each year based on your age.
Premium	The regular payment you make to keep your life insurance policy active.
Sum Insured	The lump sum amount that would be paid out on a valid claim. You choose this amount when you apply.
Level Period	The period during which a level premium remains fixed — typically until age 65 or 80, depending on the insurer and policy.
Indexation	An optional feature that automatically increases your sum insured (and premium) each year in line with inflation, to maintain the real value of your cover over time.
Crossover Point	The age or point in time at which the cumulative cost of a level policy becomes less than the cumulative cost of a stepped policy for the same sum insured.
Underwriting	The process an insurer uses to assess your application and determine whether to offer cover, and at what price.
Premium Loading	An increase to the standard premium applied when an insurer considers the applicant to be higher than standard risk.
Lapse	When a policy ends because premiums have not been paid and the grace period has passed.
Grace Period	A short period (typically 30 days) after a missed premium during which cover remains active and the payment can be made without the policy lapsing.
Terminal Illness Benefit	A feature of most NZ life insurance policies that allows the sum insured to be paid out early if the life insured is diagnosed with a terminal illness and has 12 months or less to live.

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 development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.