Stepped premiums vs level premiums

Stepped premiums increase as you age, level premiums don’t — but the latter is pricier to start with.

We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!

When you take out life insurance, you'll often be given a choice between stepped premiums and level premiums. Since level premiums never increase, they're usually better over the long run — you don't need to worry about them going up. Stepped premiums, on the other hand, often work better over the short term because they won't increase that much.

Stepped vs level premiums: What's the difference?

Arrow

Stepped premiums

Stepped premiums will generally increase with your age e.g. every year at the "policy anniversary" your premium is re-calculated.

Arrow

Level premiums

Level premiums will remain the same despite your age e.g. you'll usually pay more in the beginning but it will even out over time.

Picture not described

Stepped vs level premiums cost difference

Here's a side by side example of a hypothetical stepped v level annual premium over 10 years. As you can see, stepped premiums generally start out cheaper but in the long run, it's likely to cost you more.

AgeStepped premium Level premium

31

$145.96

$200

32

$159.86

$200

33

$173.77

$200

34

$187.67

$200

35

$215.47

$200

36

$222.42

$200

37

$229.37$200

38

$243.27

$200

39

$243.27

$200

40$250.22$200

10 year average

$207.13

$200.00

Total premium to age 40

$2,071.28

$2,000.00

Stepped level premiums are based on a sample profile from NobleOak Premium Direct Life Insurance in February 2019. Level premium is made up for illustrative purposes.

Stepped premiums pros and cons

Stepped premiums increase over time as you age. The older you are, the more likely that your health may deteriorate and therefore, your premiums (under stepped structure) will increase significantly, especially once you're older than 50 years.

Pros

  • Cheaper when you first take out a policy.
  • Good for people who don't want life insurance long term.

Cons

  • It usually costs more long-term.
  • It can become unaffordable as you get older.

Level premiums pros and cons

Level premiums don't increase as you age. Instead, your rates will be calculated based on your age at the time of application and locked in at a fixed rate for the duration of your policy.

Pros

  • It's usually cheaper long-term.
  • Good if you want long-term security.
  • It's easier to budget for.

Cons

  • It's more expensive at first.
  • Premiums can still increase slightly due to inflation rate, Consumer Price Index (CPI) and increase in policy fees.

The key differences between stepped and level premiums

Key differencesStepped premiumsLevel premiums
Do payments increase?Yes. Premiums are reviewed and calculated on a yearly basis on every policy anniversary.No. Premium rates remain the same, with a small increase each year due to indexation to keep up with inflation (usually around 5% or higher than the CPI).
Is it more expensive as I get older?Yes. Your premiums will increase significantly once your reach age 50 and over.No. Your premiums stay the same no matter your health or age.
Who is it suitable for?Those who have limited disposable income and are looking to secure short-term life insurance cover.Those looking to secure long-term life insurance cover.

What about hybrid premiums?

Hybrid premiums are the middle point between stepped and level premiums.

Hybrid premiums cost more at the beginning of the policy than stepped but lower than level premiums. Premiums increase until the policy reaches a predetermined age when the premiums level off.

Once this happens the premiums are higher than level but are lower than stepped.

Compare life insurance policies below

Name Product Maximum cover Maximum Entry Age Fully Underwritten? Terminal Illness Benefit Optional Extras
NobleOak Life Insurance
$15,000,000
69
$3,000,000
TPD cover, Trauma cover
Get your one month free when you buy NobleOak Life Insurance policy. Offer ends 31 December 2021. T&C's apply.
Real Family Life Cover
$1,000,000
64
$1,000,000
TPD cover, Trauma cover
Get a refund of 10% of the premiums you've paid (in the first 12 months) with The Real Reward™ .
Medibank Life Insurance
$2,500,000
70
$2,500,000
TPD cover, Trauma cover
Medibank health members save 10% on premiums every year. T&Cs apply.
Zurich Ezicover Life Insurance
$1,500,000
69
$1,500,000
No optional
Get your first month free and a 10% discount by taking out a second life insurance policy (discount applies to the second policy). Customers who suffer a serious side effect from an approved COVID vaccination may be eligible for a $50,000 one-off payment. T&C’s apply.
ahm Life Insurance
$1,500,000
65
$1,500,000
TPD cover, Trauma cover
ahm Health members can save 10% off premiums.
RAC Life Insurance (Only available in Western Australia)
$25,000,000
69
$25,000,000
TPD cover, Trauma cover
When you purchase RAC Life Insurance, WA residents receive complimentary RAC membership which includes access to discounts on fuel, savings on shopping, entertainment and more. T&Cs at rac.com.au.
loading

Compare up to 4 providers

Enter your details and one of our partner brokers will call you. They will discuss your quote, options and available products.

Sex
Do you smoke?

An adviser can help you find cover from trusted life insurance brands.

  • Get competitive quotes from multiple brands
  • Lower rate of declined claims (according to ASIC)
  • Save time and effort

Lender Logos

Read more:

More guides on Finder

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.
Go to site