Wealth May 25, 2020

Stepped vs Level Premiums

3 min read


In our last insurance article, we talked about when the right time to take out Personal Protection Insurance is and the take-away was that you should look to put cover in place when you are young, fit and healthy.

This week we outline the different types of insurance premiums you can choose from: namely Stepped vs. Level premium payments.


What’s the different between a Stepped and a Level premium?

A Stepped premium starts out lower and increases each year as you get older and your risk of claiming increases.

A Level premium starts out higher but does not increase as much with age. A Level premium is calculated on an average and yes, you might be slightly more out of pocket compared with a Stepped premium when younger, but over time you will save a lot of money.


Why would someone choose to pay more upfront?

Most importantly, Level premiums ensure rates are affordable at a time when you potentially need the cover most, plus Level premiums allow you to forecast your costs well into the future.


How do the two compare long term?

Below we’ve modelled a Stepped vs Level Premium for $2,000,000 Life Insurance from age 27 to age 70.


At age 27, for a male based on $2,000,000 life cover the cumulative premium for Stepped cover is $318,415 over the 42 years compared with $60,473 on a Level premium.

From that perspective, it’s a pretty straightforward decision. You get the same payout of $2,000,000 no matter which premium you select, however you get to choose whether it costs you an extra $258k or not.


Get to know your own numbers

How much insurance, how long you should hold it for and whether you should opt for a Stepped or Level premium are all questions our Financial Adviser can help answer for you, among a host of other things.

Get in touch here if you’d like to compare some different insurance options and costings to fit your budget.