When it comes to protecting your family, knowledge is not just power – it’s security.

You have a choice when it comes to paying premiums: stepped or level. But what does that mean and which one is right for you? There is no one-size-fits-all answer as both policies will be suitable for different types of policyholders.

Client’s come into our office from all over the Macarthur Region and the wider Sydney area looking at Insurance options for themselves and protecting their family. Our process is to uncover our client’s personal goals, discuss the different solutions available and put together a personalised plan around their objectives.

In the below article we aim to lay out both the benefits and drawbacks to stepped and level premiums, that proves the question is not complicated; in fact, it offers consumers greater choice in protecting their loved ones. Use this guide to help you make a more informed decision about which option is the best fit for your unique lifestyle, needs, and circumstances from now and into the future.

Level premiums

Level premiums will cost more to begin with, but the premium you are charged will be based on your age at the time you took out that cover. You can still have the cover adjusted to keep pace with inflation – the cost of that new cover will be added to the premium each time inflation is applied. Because level premiums don’t increase each year with your age, they can give you more certainty on cost when planning ahead for the future.
Depending on how long you hold the cover – and as long as you can afford them – level premiums can save you money in the long-term.

Stepped premiums

As the name suggests, stepped premiums start off at a cheaper point and rise from there. Premiums are recalculated each year as you get older and/or with changes to the Consumer Price Index (CPI). With stepped premiums, you can save money in the short-term, while resting safely in the knowledge that loved ones are protected.

One drawback to a stepped premium is the inability to accurately predict and properly plan for the increasing premiums. In some cases, stepped premiums may be reduced if, for example, you change from a high-risk to a low-risk occupation.

According to RiskInfo, stepped premiums are the “dominant choice in the Australian marketplace”, but is this a lack of foresight?ⁱ Policyholders with stepped premiums need to look ahead to think about whether they will have the funds required for higher premiums as they enter their fifties and sixties.