Stepped vs Level Insurance Premiums
When you obtain Life insurance, TPD insurance, Income Protection &/or Trauma Insurances you have the choice of how you would like to structure your premiums either via Stepped or Level premiums.
Stepped Premiums – Insurance Premiums are calculated on our age, meaning the younger we are the cheaper the cost. However each and every year we get older, as a result these insurance premiums will also increase based on our age.
Level Premiums – Insurance Premiums generally cost more now, however the rate does not increase with our age, meaning you potentially pay a lot less when you get older. As most of us require the insurances over the long term (generally through until age 65), a level premium structure is usually the better option.
If you have selected indexation, your sums insured are indexed & as a result both Stepped & Level premiums are also subject to these small indexation increases.
Initially when we see insurance premiums we can be mislead into thinking the cheaper “Stepped” premium option is better for us, however when looking deeper into the options “Level” premiums provide a greater long term saving, in many cases can save you over 50% of the total amount of premiums paid over your lifetime.
Claims history has proven to us that when we require insurance the most, (ages 40 to 65) premiums can sometimes be too expensive to keep, so we reduce our levels of insurance cover. Level premiums will stay the same through to age 65, so in our later years when we need the cover the most, we will still be able to afford it.
What to choose – stepped or level premiums?
Both Level and Stepped Premiums are good options; however it depends on your personal situation to determine which option suits you best. However if you are under the age of 60 and should you be wishing to hold the insurance over the long term – level premiums are the best structured option, potentially saving you thousands!
There is no substitute for quality advice; this is just one of many considerations which can make obtaining & maintaining personal insurances very complex and confusing. The team at The Money Edge has the expertise to assist in all Personal Insurance matters, so to ensure you have the correct structure ensure you contact The Money Edge team for quality advice!