Choosing between Stepped and Level Premiums

When choosing Life Insurance, consumers are often faced with the confusing choice of either a stepped or level premium option; this can be especially difficult without knowing what this can mean for both the long and short term.

A stepped premium is recalculated at each policy renewal date according to the policy holders’ age, and the risk factors associated with getting older. A stepped premium begins as the less expensive option but the nature of these types of policies is that they become more expensive as you get older as the risk to an insurer increases.

A level premium is calculated when you take out the policy, and is designed to stay at the same price throughout the life of the policy. These policies can be more expensive to begin with, but as premiums generally remain the same each anniversary, you may find that premiums become cheaper than stepped premium options over time and at older ages, however a note of caution - generally level premium policies revert back to a stepped premium model when the policy holder turns 65.

While you should always consider your own circumstances and objectives, there are some general factors you should consider when choosing a premium structure.

Level premiums start off more expensive than stepped premiums and it is only over a longer time period that they become cheaper. The policy must be held for a reasonable amount of time before you reach a break even point, and longer again to start to make a gain. If you are not planning to keep a policy for a long period of time then you may not see the benefits of choosing a level premium.

When considering life insurance and your level of cover ‎it's worthwhile reviewing your current situation and commitments, but you should also keep in mind that your needs can change over time, reducing debt levels and increases in assets, mean that over time your insurance needs can change as well.

Decreasing the level of life insurance cover as needs change can mean the cost of insurance decreases.

A level premium option may allow you the comfort of knowing what your insurance premiums will be up front, however a stepped premium structure is generally the cheaper option in the short term and may be appealing to people who do not have a high amount of disposable income right now.

Important note:
The insurance is issued by Allianz Australia Life Insurance Limited ABN 27 076 033 782, AFSL 296559. The information contained on this website is general information only. It does not take into account your individual objectives or financial situation. You should therefore consider the appropriateness of the insurance having regard to your objectives, financial situation and needs. Prior to making any decision you should read the Allianz Life Plan Product Disclosure Statement and Policy Document (PDS). You should seek advice from your financial adviser before deciding on appropriate insurance cover.