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Life insurance premiums in Australia. Stepped vs level premiums.

Life insurance premiums are predominantly based on the risk of certain events happening to you. Because health risks increase with age, life insurance premiums will generally increase over time. That’s why most insurers offer two common ways of paying for, and managing, the costs of your cover over time. This article will hopefully give you a better idea of what each premium type means which will go along way in deciding what’s best for you. Alternatively if you choose to engage a financial adviser, such as the , we will be able to guide you based on your needs, objectives, financial situation as well as premium projections. 

Stepped premiums: This is when the cost of your cover is recalculated each year based on your age at policy anniversary. Generally this means your premiums will be cheaper at the start when comparing to level but will increase yearly with age and may end up more expensive over the life of the policy. This also depends on how long you have held the policy for.

Level premiums: Where premiums are calculated based on your age when the cover starts. Your premiums is generally averaged out over a number of years, which means you avoid increases in your premium due to age at each policy anniversary. Level premiums are more expensive at the beginning of the policy but generally get cheaper (relative to stepped premiums) as your policy continues. One thing to keep in mind with level premiums is whilst they don’t increase with age each year, they can be increased by the insurer. Unfortunately this has been a fairly regular occurrence recently due to the low interest rate environment and negative claims experience experienced by insurers especially in relation to Income Protection policies.

Stepped or level premiums- which one is right for you?

Generally this depends on how long you’re planning on keeping the policy for as well as your age and personal situation. For example, if you think you might want to reduce your level of cover down the track (eg when your kids are grown up or you’ve paid down debt) then level may not be suitable. On the other hand you may be young and want some certainty in your later years that your insurance premiums will still be affordable, in that case level premiums may be suitable.

If you currently have life insurance cover in place (this includes Income Protection, Keyman insurance, Total & Permanent Disability and Trauma insurance) we suggest reading the relevant product disclosure statement and policy documentation as well as speaking to your financial adviser. Alternatively get in touch with us and we would be more than happy to assist with your needs.

The information provided here is general only and does not consider your personal objectives, financial situation or needs. Before you decide to purchase a product, it is important to read the relevant PDS.

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