Insurance premiums may be structured in one of two ways: stepped or level. Stepped insurance premiums are the more commonly known option, and involve payments steadily increasing over time. Level insurance premiums remain steady over time.

It would seem obvious that level premiums are the best choice, however it becomes more complex when you consider that both premium models increase with the age of the applicant at the time of commencing the policy. The younger a person takes up a level insurance policy, the cheaper their ongoing premiums will be, however it is the case that the likelihood of needing to claim also increases with age. This means that their premiums will be lower, however they will likely be paid for an extended time before a claim is necessary.

Stepped premiums may start out slightly lower at the time of commencement, however over time as they increase, they will likely surpass the level premiums. Again the question comes down to when the insurance policy will be claimed in terms of time from starting the cover.

It makes sense that the longer a policy is held for, the more time that the holder is covered and the more likely that they will be covered at the time of a claimable event. Whichever policy model you decide to go with, it makes sense to consider the policy over the long term. Your financial adviser will be able to discuss with you the best policy model for your situation.

Graph provided by MLC for use by Finstyle. All advice is general, seek advice from your financial adviser to determine if advice is right for your circumstances.

Disclaimer: The postings on this site are my own and don’t necessarily represent the views or opinions of Total Financial Solutions Australia (AFSL# 224954)

This information does not take into account the reader’s objectives, financial situation or needs. For this reason, before you act on this advice, you should consider the appropriateness of the advice taking into account your own objectives, financial situation and needs. Before you make a decision about whether to acquire a financial product, you should obtain and read the product disclosure statement.

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