When it comes to insurance, one of the key decisions to make is how you want your premiums to be structured – stepped or level. While this might sound like a small detail, it can make a big difference in your short-term affordability and long-financial strategy.
Stepped and level premiums are available with most types of risk insurance – like life cover, trauma, total and permanent disability (TPD), and income protection.Health insurance works a little differently, so these premium structures don’t apply here.
Why Choose Stepped Premiums?
Stepped premiums start lower but increase as you age (each birthday).
They are often the go-to choice for people who want affordability in the early years – this makes them ideal for budget conscious individuals or families, and those with short-term insurance needs (e.g. those only needing cover for a set period like whilst paying off a mortgage). The benefit of stepped premiums is that they do offer flexibility and the option to switch to level premium later is possible.
Why Choose Level Premiums?
Level premiums start higher but stay the same no matter your age. They can be fit for purpose if you want to keep your insurance for a long-time. It offers predictability in your long term budget and financial strategy, it protects you from premium increases, and is also a great option for those wanting to cover funeral expenses or leave behind lump sums for their loved ones.
Scenario: Lucy’s Life Cover Plan
Lucy – Mother of 3 wants to make sure the mortgage is paid off for her family, if she were to pass away. She’d also like to leave her children an inheritance of $100,000 each.
- For her mortgage cover, she opts for a stepped premium. This allows for lower initial costs, and as the mortgage balance decreases over time, she can reduce this cover as needed.
- To cover the $300,000 for her children, she chooses a level premium, ensuring it stays affordable long-term.
This approach allows Lucy to balance affordability whilst ensuring long-term protection for her family.
What Option is Right for You?
Choosing between stepped and level premiums depends on your unique situation, budget, and how long you plan to keep your insurance.
Our team can create a comparison graph to show you how you potential stepped vs level premiums behave over time. A stepped premium starts lower but increases every year, whereas a level premium begins higher but remains consistent, potentially resulting in cost savings in the long run.
Our Insurance Team can help design a tailored plan to suit your situation, ensuring you get the right cover.
