And how to determine which premium option is best for you.
Apart from helping people get covered with the right insurance, another big part of what I do at Aspire Risk Advisers is help people decide if they should opt for stepped or level premiums for their insurance policies. Whether it’s for Life, TPD insurance or Income Protection insurance, the decision comes to one key question; how long do you plan to hold your insurance? The total projected premium over that period will let you know what your best option may be. Let’s take a look at the differences between stepped and level premiums.
What are stepped and level premiums?
Stepped and level premiums are the two most common types of premiums people pay for life insurance policies.
Stepped premiums start at a lower price than level premiums and increase as you age to reflect the increased chances of claim due to health risks. The main advantage of stepped premiums is the low cost of the premium when you first take out your policy. The big disadvantage, however, is that as you age the premiums may increase to a point where your policy can end up becoming too expensive to keep. This can be difficult because you’ll likely need your policy most as you get older.
The cost of a policy with level premiums is more expensive when you first take it out, however, the key difference is that level premiums don’t increase due to age-related health risks. This means level premiums can be more expensive to start with but could end up cheaper in the long run than stepped premiums.
Are there any other premium options for life insurance?
Some insurers offer hybrid premiums which are a combination of stepped and level premiums. These premiums are typically more expensive than stepped premiums, but cheaper than level premiums.
Premium frequency and the benefits of paying annually
Another consideration you’ll need to make is how often you’ll pay your insurance premiums. Depending on the insurer and the policy, you generally have four premium frequency options — monthly, semi-annually, quarterly or annually. While it gets paid in one large lump sum, the most economical option is paying your insurance premium annually as the insurer will typically offer a discount. The discount for paying your premiums annually is usually between 2 and 8 per cent. The other key benefit of paying your premiums annually is that you only need to think about your insurance policy once per year when you’re organizing payment.
As with any insurance product, there’s no one size that fits all when you’re deciding on a premium option for your insurance policy.
Insurance decisions can be hard to make, so it’s important you speak to a professional about your situation. That’s why we provide tailored advice at Aspire Risk Advisers to ensure your coverage is there when you need it most.
Click here to talk with one of our advisers today about the insurance premium option that’s best for you.
The information in this article is of a general nature and does not take into account your financial objectives, circumstances or needs. You should consider your personal situation and requirements before making a decision. If you have concerns or questions, please contact Aspire Risk Advisers.