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Insurance: Stepped or Level Premiums?


Feb 15, 2016


Pay the premium your way. You have two options in stepped and level premiums. Which one is right for you? Read on to find out what the financial experts at Nitschke Nancarrow recommend.

Having made the decision to obtain risk insurance, you next need to decide whether you want to pay stepped or level premiums. That’s right – you get to pick your desired premium based on how much you want to pay. Your circumstances don’t lock you into any single option.

Stepped Premiums

If you select stepped premiums, your insurance premium will increase each year as you get older. The attraction is that this option is relatively cheap in the beginning. If you are considering this option, take a look at the premiums for the next 5 to 10 years (or however long you intend to hold the insurance for). This way, you can forecast your income to ensure you will be able to afford the premium increase each year.

In the short-term, this premium is the most affordable. It’s important to keep in mind, however, that the premium fluctuates with your risk level. As you age, it is generally assumed that you will be at an increasingly greater risk of disease and accidents. This option may be ideal to start out with if you have a young family struggling to make ends meet, but think about how the increased expense will affect you later on.

Level Premiums

Level premiums do not increase over time, but they are more expensive than stepped premiums at the start. While they don’t increase with your age as stepped premiums do, level premiums may increase due to inflation or changes to the insurer’s fees.

If you intend to keep your policy for a long time, level premiums should work out to be the cheaper option over the life of your policy. Speak to your Financial Planner about what the best option would be for you. They should be able to show you at what age the crossover point would be. This is the point at which stepped premiums will become more expensive than level. Of course, this is dependent on your policy and your age at the time that you take it out.

Getting the risk insurance policy that’s right for you depends on having a premium that works best for your circumstances.

Need more help in deciding which premium is ideal for you?

Nitschke Nancarrow provides you with expert advice. Call our Adelaide office on (08) 8379 9950 or send me an email for more information.

– Kym Nitschke

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