When taking out insurances, you should consider paying level rather than stepped premiums.
What are the benefits?
By using this strategy, you could potentially:
- pay 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.
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