Level vs Stepped Premiums, Are You Missing Out?
Not all level premium types are created equal.
What is the difference between stepped premium and level premium types?
Stepped premium types are recalculated each year based upon your changing benefit amount and age. Generally stepped premium rates increase each year in line with your age and in the early years of the cover will tend to be lower than what they would pay under a level premium type.
Level premium types are also recalculated each year for changes in your benefit amount, but not for your increase in age. The premium rate is calculated based upon age at the cover start date and will only increase as a result of the increasing your amount of cover. A level premium type will generally be higher during the early years of the cover than what you would pay under a stepped premium type, but generally becomes lower in later years.
What about increases in cover as a result of the Indexation Benefit?
The way in which an insurer prices the increase in cover with regards to the Indexation Benefit under level premium types can have a significant impact on the total cost of cover you will pay over the long term. Most insurers base the cost of the increased cover on the age of the client at the time they accept the increase. In doing so, this actually creates a stepped element to the premium.
Indexation Benefit upon the age of the client at the cover start date. Over the long term, this can translate to significant savings in premiums. Only a few insurers in the market adopt this practice.
What does this mean?
This can best be explained by way of example…
A male non-smoker, 35 years of age with a death benefit of $1,000,000 showing stepped versus level premium till age 60 – total cumulative premiums on a level policy to age 80 would be $27,759.60 some cover to same age on a stepped policy would be $707,212.14.
Would you like your current premium reviewed? Call Paul Douglas-Irving direct on 0438 232505 to schedule you confidential, free strategy session.
Any advice provided in this publication should be considered General Advice as it does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate for you and whether you should act upon it.