Stepped or level insurance premiums or both?

When you take up insurance, there are generally three ways you can pay the insurance premiums:

1. Level premiums are based on age when cover commences.

2. Stepped premiums increase as the age of the insured increases.

3. A combination of the two. 

The third option could be especially attractive for people who take up bundled insurance that may include Life, TPD and Critical Illness insurance in the one policy contract. Why? For Life and TPD insurance, stepped premiums tend to increase at a lower rate as the insured ages so it is a more affordable option. Whereas stepped premiums for Critical Illness increase quite substantially with age. So placing a Critical Illness policy on a level premium rate could really improve affordability for you in the long-term. 

Over time, you can reduce the stepped premium cover as you build up more assets and potentially need less insurance. As a result, you could end up paying level premiums on most (if not all) of your insurance in the later years, and benefit from the lower premium costs associated with level premiums at that time. 

Did you know?

Most claims occur in later years of life, but many policies lapse at this time due to the higher stepped premiums. By combining stepped with level premiums, you can make the cover more affordable in the later years so you can keep the cover going at a time when you need it most.  

Case study

Steve is a 35 year old white collar professional. After discussing his insurance needs with his adviser, Steve decided to take out Life, TPD insurance on stepped rates and Critical Illness insurance on level rates to age 60.

The adviser provided Steve with comparative insurance premium quotations for stepped and hybrid premiums (stepped and level) over the life of the policies to show Steve how much he could save.  

By combining stepped premiums for Life and TPD, and level premiums for Critical Illness (hybrid premiums), Steve saved $47,422 over the term of the cover. 

The above information has been sourced from Norwich Union Life Australia Limited.

Important Information

The above information provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The above information doesn’t take into account your personal objectives, financial situation or needs. It’s important for you to consider these matters before making any financial decision and I recommend you seek help from a financial adviser.