When you are comparing the cost of life insurance, income protection insurance, trauma insurance or total and permanent disability insurance (TPD), you should be aware of the differences between what are known as “stepped” vs “level” premium policy payment structures. Many insurers will offer a choice of both options. Broadly, the high level difference between the two options are as follows :
Stepped premiums : The premium cost increases every year as you get older. Starts off lower but can become higher at older ages.
Level premiums : Premiums start higher than stepped, but (broadly) do not increase as you get older each year. You may be able to save costs (compared to stepped) if you keep your policy for many years.
Both stepped and level rates can go up or down if the insurer’s claims experience is better or worse than expected. Level rates protect you from the impact of price increasing as you get older but not from overall pricing rises.
The difference between the two options can be broadly considered as follows :
The difference between stepped and level premiums is dependent on each person’s personal circumstances and can differ across products and across insurers. The information provided here contains general information and examples and does not take into account your personal objectives, financial situation or needs. It is important, before deciding whether to act. that you consult a licensed or authorised financial adviser if you require financial advice that takes into account your personal circumstances.
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