When considering to take out a life insurance, income protection or trauma insurance policy you have the choice of how you would like to structure your insurance premiums either through Stepped or Level premiums.
Stepped Premiums – Insurance Premium is calculated on our age, meaning the younger we are the cheaper the cost.
Level Premiums – Insurance Premium is calculated on a average premium, meaning you might pay more younger but you pay a lot less when you get older.
Initially when we see insurance premiums we can be mis-lead in thinking the cheaper Stepped premium option is the better.
But when looking deeper Level premium cover provides a greater long term saving and in many cases can save you up to 50% of the total amount of insurance cover paid over your life time.
Claims history has proven to us that when we most need insurance (ages 40 to 55) the cost of insurance can sometimes be too expensive to keep. By taking Level cover your insurance premium will stay the same, so in our later years when we need the cover the most, we will still be able to afford it. Take a look at the case study below.
Case Study
Age: Male, 38 years old
Occupation: A class - professional and clerical
Salary: $80K - Monthly benefit $5,000, non smoker.
Income Protection Premium comparison - annual (LCS)
| Age bext birthday | Yearly Stepped Premium ($) | Yearly Level Premium ($) |
| 39 | 1,193.07 | 1,805.55 |
| 40 | 1,256.86 | 1,805.55 |
| 45 | 1,754.50 | 1,805.55 |
| 50 | 2,647.70 | 1,805.55 |
| 55 | 4,204.42 | 1,805.55 |
| 60 | 5,461.28 | 1,805.55 |
| 65 | 5,346.44 | 1,805.55 |
| 27 year average | 3,477.57 | 1,805.55 |
| Total premiums to age 65 | 93,894.47 | 48,749.85 |
| Inflation adjusted | 2,164.51 | 1,262.34 |
Benefit details: Plus contract, $5,000 monthly benefit, inflation linked, agreed value, guaranteed renewal, benefit period to age 65, 1 month waiting period, no short waiting periods for accidents, no extra benefits option, indexed claim benefit, no aids exclusion. Premium excludes policy fee, premiums are not guaranteed and may be varied in the future.
Critical Illness premium comparison - annual (PPP)
| Age bext birthday | Yearly Stepped Premium ($) | Yearly Level Premium ($) |
| 39 | 942.49 | 2,482.49 |
| 40 | 1,084.17 | 2,482.49 |
| 45 | 2,273.05 | 2,482.49 |
| 50 | 4,226.21 | 2,482.49 |
| 55 | 7,839.93 | 2,482.49 |
| 60 | 14,993.55 | 2,482.49 |
| 65 | 26,934.06 | 2,482.49 |
| 27 year average | 8,431.66 | 2,482.49 |
| Total premiums to age 65 | 227,654.96 | 67,027.23 |
| Inflation adjusted | 4,830.42 | 1,735.61 |
Benefit details: Critical Illness (extension) $500K (plus), inflation linked, life cover buy back option, no extra benefits. Connected to Life Cover Super. Premium excludes policy fee, premiums are not guaranteed and may be varied in the future.
Conclusion
Both Level and Stepped Premiums are good options, however it depends on each persons situation to determine which option would suit them best. However should you be wishing to hold the cover over the long term - level premiums is the more affordable option!
At Rate Detective we have secured the services of some of Australia’s best life insurance and income protection professionals that are available for a free one-on-one consultation to identify your needs. If you are interested in Term Life Insurance, or any other forms of life insurance, please feel free to make an enquiry and we will put you in touch with one of these professionals. And by applying through Rate Detective you receive 20% off your insurance!
