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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?
Stepped premiums
Stepped premiums will generally increase with your age e.g. every year at the "policy anniversary" your premium is re-calculated.
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.
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.
Age
Stepped 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 differences
Stepped premiums
Level 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.
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
Why compare life insurance with Finder?
You pay the same price as buying directly from the life insurer.
We're not owned by an insurer (unlike other comparison sites).
We've done 100+ hours of policy research to help you understand what you're comparing.
An adviser can help you find cover from trusted life insurance brands.
You pay the same as buying directly from the life insurer. Better still, we regularly run exclusive deals that you won't find on any other site – plus, our tables make it easy to compare policies.
We're experts
Our team of life insurance experts have researched and rated dozens of policies as part of our Finder Awards and published 250+ guides to make it easier for you to compare.
We're independent
Unlike other comparison sites, we're not owned by an insurer. That means our opinions are our own and we work with lots of life insurance brands, making it easier for you to find a good deal.
We're here to help
Since 2016, we've helped 270,000+ people find life insurance by explaining your cover options, simply and clearly. We'll never ask for your number or email. We're here to help you make a decision.
Read more:
Frequently asked questions
The 3 most common life insurance types in Australia are:
Death cover. Pays out a lump sum to your loved ones in the event of your death
Income Protection. Provides an ongoing monthly benefit of up to 85% of your income if you are forced to take time off work due to illness or injury
Total and Permanent Disability (TPD) cover. Pays out a lump sum if you become totally and permanently disabled and can no longer work.
Stepped premiums increase each year as you age. This is because the risk of death or illness increases as you get older.
Level premiums remain the same each year. They're typically more expensive than stepped premiums when you're younger. However, they can be cheaper in the long run as they stay the same over time.
Gary Ross Hunter is an editor at Finder, specialising in insurance. He’s been writing about life, travel, home, car, pet and health insurance for over 6 years and regularly appears as an insurance expert in publications including The Sydney Morning Herald, news.com.au, The Telegraph, Explore Travel and Escape. Gary holds a Kaplan Tier 1 General Insurance (General Advice) certification and a Kaplan Tier 1 Generic Knowledge certification which meets the requirements of ASIC Regulatory Guide 146 (RG146).
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