Stepped vs Level Insurance Premiums

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 your age, meaning the younger you are the cheaper the cost and that premiums will increase over time.

Level Premiums - Insurance Premium is calculated on an 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 - Stepped and Level Premiums


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)

The values below are examples only to demonstrate the difference between Stepped and Level premiums and may not be the same values applicable to you.

Age next 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 next 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.

What to choose - stepped or level premiums?

Both Level and Stepped Premiums can be viable options. The choice between them depends on your budget and how long you anticipate holding the cover. Generally speaking, if you anticipate holding the cover for more than 8 years, then there can be significant savings from level premiums if you can afford the initial higher price. 

At Rate Detective we can provide you a stepped vs. level comparison upon request. To start the process fill out the contact form on this page. 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% cash rebate for your first year's insurance premiums!

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Published on July 7-th, 2008 in Insurance
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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Important Information

Not all providers in the market are included in the comparison.

Any information or advice contained on this website is general in nature and has been prepared without taking into account your objectives, financial situation or needs.