When considering to take out a life or trauma insurance policy you have the choice of how you would like to structure your insurance premiums either through Stepped or Level premiums.
Stepped Premiums
Insurance Premium is calculated on your age, meaning the younger you are the cheaper the cost and that premiums will increase over time.
Level Premiums
Insurance Premium is calculated on an average premium, meaning you might pay more younger but you pay a lot less when you get older - meaning you save money over your lifetime.
Initially when we see insurance premiums we think the cheaper Stepped premium option is the better. But when looking deeper, Level premium cover provides a greater long term saving and in many cases can save you up to 50% of the total amount of insurance cover paid over your life time. Gen-Re’s re-insurance study of the NZ market (2004-2009) shows the average age some-one takes out a trauma policy is 40, the average age they cancel the trauma cover is 48-49 and the average age of claim is 50-51. By taking Level cover your insurance premium will stay the same, so in our later years when we need the cover the most, we will still be able to afford it.
Both Level and Stepped Premiums can be viable options. The choice between them depends on your budget and how long you anticipate holding the cover. Generally speaking, if you anticipate holding the cover for more than 10 years, then there can be significant savings from level premiums if you can afford the initial higher price.