Back to Basics - Level vs Stepped Premiums

Carrying on with the Insurance “Back to Basics”, we look at the difference between level and stepped premiums.

Stepped premiums are age-related and increase as you grow older, to reflect your increased risk of injury or illness. Level premiums start off costing more than stepped premiums but do not increase, irrespective of your age. This means, initially, level premiums will cost more than stepped premiums. However, as the cost of stepped premiums increase (typically annually), the rate will exceed that of the level premiums.

There is no single correct solution. In determining which premium structure is appropriate for you, consider:

• how long you expect to keep the cover for; and

• if you anticipate that you will change the amount of cover

If you expect to keep your insurance long-term, level premiums might be the option for you, because you lock in the rate you pay and over the long term you will likely make a cost saving relative to stepped premiums.

However, if you expect to keep your insurance only for the short/ medium term and/or reduce the cover in the future, stepped premiums might be the option for you. Stepped premiums make it more affordable to start on an insurance plan because you only pay for the risk associated with your current age.

Then there is the third option – you could combine level and stepped premiums in your plan.

Would you like to chat about your options?

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Valentina Pereira is a Registered Financial Adviser and a Chartered Accountant with the Institute of Chartered Accountants in England & Wales. The comments above are not intended to be personal advice. If you would like to discuss the contents of this article,

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I live and work locally and am passionate about helping people protect themselves, and their families. Have any questions? Contact me, Valentina Pereira and we can chat over a coffee. t 021 627 802 I e valentina@mirockfs.co.nz I www.mirockfs.co.nz

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