Stepped versus Level Life Insurance
If you are looking for the best life insurance product in Australia, you could find it inevitable to choose between two types of policies based on premium structure. There are so-called stepped premiums and level premiums. The advantage of each could depend on how you look at in terms of shouldering your regular premium payments. In general, stepped premiums are easily considered advantageous in the short term. In the long term, level premiums would be more attractive.
Your insurance agent could have led you to stepped-premium life insurance products if you are looking for the cheapest option. Brokers prefer to carry such products because it is much easier for them to effectively ‘make the sale.’ However, on the side of the policyholder, this type of insurance may be attractive only initially. It is because premiums are re-rated every year. The cost of premiums goes up along with the client’s age. Thus, the older one gets, the more expensive his insurance gets. Many policyholders decide to reduce benefits or worse cancel the policy altogether when they reach their 50s or 60s because premium costs become unreasonable.
Level-premium life insurance products may seem unattractive at first because they assume higher premiums compared to stepped-premium insurances. However, dramatic increases in premium costs do not show up over time. Costs are adjusted according to Consumer Price Index or inflation and to possible increases implemented by the insurer. You could be certain at how much you would pay for your premiums until you reach the age of 65 years. In most cases, after you reach 65 years old, the premium would automatically revert to take a stepped premium structure, which increases each year.