When taking out insurances, you should consider paying level rather than stepped premiums to reduce the cost of insurance.
What are the benefits and how do you reduce the cost of insurance?
By using this strategy, you could potentially reduce the cost of insurance by:
❇️ paying a lower average premium over the life of the policy, and
❇️ make your cover more affordable at a time when you need it most.
How does the strategy work?
- When you take out insurance within or outside super, there are generally two ways you can pay your premiums.
- You can opt for a stepped premium that is calculated each year in line with your age.
- Or you can choose a level premium that is calculated each year based on your age when the cover commenced.
Level premiums are usually higher than stepped premiums at the start (as the graph below reveals). However, over time, as stepped premiums increase, level premiums could end up cheaper – often at the stage in life when you need the cover most.
The premium savings in the later years could also make up for the additional payments in the earlier years, saving you money over the life of the policy.
Note: Choosing a level premium does not mean your premiums are guaranteed or will not change in the future. Level premium rates may increase due to rate increases, CPI increases and policy fee increases. However, unlike stepped premiums, level premiums don’t go up by age‑related increases.
Let’s also look at tax effective life insurance and total & permanent disability (TPD)
You can also be reducing the cost of insurance using this strategy; you could:
- Potentially reduce the premium costs, and
- Enable certain beneficiaries to receive the death or tpd benefit as a tax-effective income stream.
👀 You can read how to further reduce the cost of insurance here
💡 If you need more information or help to help reduce the cost of insurance and or establish the most cost and tax-effective life insurance strategy, contact us today on 08 7111 0022 or book a chat to see how we can best help you here
Arthur Panagis
Author, Founder, Wealth Coach and Financial Strategist
B.Bus (Accountant)
Grad Dip (Financial Planning)
Professional Certificate in Self Managed Super Funds
ASX Listed Equities Accreditation
Tax (financial) Advisor
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Disclaimer: This article is factual information only. It is not intended to imply any recommendation about any financial product(s) or to constitute tax advice. The information in the article is reliable at the time of distribution, but may not be complete or accurate in the future.
