If you are on Stepped premiums, you may have noticed how your premiums keep increasing more and more each year. They increase for two reasons:
- CPI, an increase that keeps your sum insured in line with inflation, which can be cancelled
- Age, premiums rise annually as your get older, known as ‘rate for age’.
The older you get the higher those premiums rise, until they become unaffordable and you feel forced to reduce your cover or cancel altogether.
But there are other options, such as Level premiums, which have the potential to save you $1,000’s.
Level term insurance structures your premiums, so they stay the same until the expiry age. While this does increase the premiums in the early years, it has the potential to save you thousands over the term of the policy, making it a good option for a long-term strategy.
To get a basic understanding, here is a simple graph, showing how stepped premiums compare to level premiums.
To keep the costs down in the early years, there is also the option of having combinations of the two.
Deciding on which option to choose does come down to how long you will want to keep the policy and how much you can afford in those early years.