Why 3 in 4 policies* are bought on a stepped premium
Stepped premiums start lower (even though it can be more expensive in the long run)
We’re all psychologically wired to be present biased – this is a tendency to over-value immediate savings and rewards at the expense of what’s better for us in the longer term. This trait can have implications on the cost of your life insurance.
It’s important to remember that stepped premiums are lower to begin with – this is a genuine benefit for people who only need cover for a short amount of time – but they can become very expensive as you get older.
Advisers know that customers are sensitive and rightly concerned about the cost of cover, which may be why stepped premium policies – with lower initial premiums – are often recommended to customers.
It’s important that you consider the lifetime cost of your cover.
As illustrated below, the differences between stepped and level can be significant as time goes on. This chart shows the difference between the two when you look at increases due to age and assumes that premium rates and/or premium factors aren’t increased and that the amount insured is not indexed.
Both stepped and level premiums can increase due to factors other than age.
Premium rates and premium factors are not guaranteed or fixed, and insurers have increased premium rates in the past and may increase in the future.
We recommend that you refer to the relevant product disclosure statement and policy documentation, and speak to your financial adviser, to understand other factors affecting your premiums. Click here to also read about factors that could affect your premium.
* Based on OneCare in-force policies, as at 1 December 2018.
To decide whether stepped or level premiums are best for you, we recommend you speak to your financial adviser.