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Stepped premiums vs level premiums

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

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?

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Stepped premiums

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

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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.

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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 Terminal Illness Benefit Claims Acceptance Rate Average Claim Time Sum Insured
NobleOak Life Insurance
$25,000,000
74
$25,000,000
96.90%
1.1 months
$24,483 million
Our verdict: Finder Life Insurance Award winner for the last 5 years in a row. Good value for money, simple application process and a high claims acceptance rate.
Medibank Life Insurance
$2,500,000
70
$2,500,000
Data not available
Data not available
Data not available
Our verdict: Medibank offers a higher payout limit ($2.5 million) than 15 other providers. Get a 10% discount if you're already a Medibank Health Insurance member.

⭐ Current offer: Save 10% on your first year of Medibank Life Insurance when you apply by 31 July 2024. T&Cs apply.
TAL Accelerated Protection Life Insurance
No set limit
74
Not stated
Data not available
1 months
$249,285 million
Our verdict: One of Australia's leading life insurers. Automatically includes child critical illness cover. Plus, it comes with a level premium option (e.g. costs remain similar as you get older).

⭐ Current offer: Get up to 15% off your TAL Life, Trauma or TPD insurance policy for life - if you have a Body Mass Index (BMI) between 19 and 28 at the time of your application. Offer T&Cs on insurer website apply.
ahm Life Insurance
$1,500,000
55
$1,500,000
Data not available
Data not available
Data not available
Our verdict: ahm offers a simple application process. You can be approved online or over the phone. There are no medical or blood tests needed.

⭐ Current offer: Get 10% off your first year of ahm Life Insurance when you apply by 31 July 2024. T&Cs apply.
AAMI Life Insurance
$1,500,000
65
$1,500,000
Data not available
3.1 months
$37,768 million
Our verdict: There’s flexibility with AAMI as you can add another adult to your cover, with a competitive limit of $1.5 million. Easy application process with no medical exams.

⭐ Current offer: Save up to 10% on premiums every year for the life of the policy on AAMI Life Insurance. Offer ends 30 Sept 2024. T&Cs apply.
Suncorp Life Insurance
$1,500,000
65
$1,500,000
Data not available
3.1 months
$37,768 million
Our verdict: Competitive maximum cover limit of $1.5 million. Suncorp lets you change your cover amount by up to $100,000 after a big life event, such as having a baby.

⭐ Current offer: Save up to 10% on premiums every year for the life of the policy on Suncorp Life Insurance. Offer ends 30 Sept 2024. T&Cs apply.
Real Family Life Cover
$1,000,000
64
$1,000,000
88.90%
2.4 months
$53,238 million
Our verdict: The application is simple; it can be done with 1 phone call and there are no medical exams. But households with larger debts may need more than a $1 million payout.

⭐ Current offer: Get back 10% of the premiums you’ve paid after 1 year.
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Gary Ross Hunter was 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, The Guardian and news.com.au. Gary holds a Kaplan Tier 2 General Advice General Insurance certification which meets the requirements of ASIC Regulatory Guide 146 (RG146). See full bio

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