Life insurance is one of those purchases where it’s better to have it than not. It can be a difficult product to understand with so many features and terms. Once you know how it all works together, it becomes a lot easier.
Understanding how it works should help you save money – right? After all, the older you get, the more expensive your insurance becomes.
Not quite – as you get older, the costs of your premiums might rise due to it becoming riskier to insure you (due to your susceptibility to illness or injury). But there are ways to navigate around it, such as by working out what kind of insurance premiums are better suited to your needs.
Stepped premiums begin cheaper and get more expensive as you age. Their main advantage is that they are initially quite inexpensive. As you grow older, however, the costs to insure yourself grow considerably.
They’re a suitable option for people who may not want life insurance for the long term, such as those who may be in a higher-risk job, but can become too expensive to maintain when you are older (and generally the point in life that you might need it most.
Level premiums are more expensive when the policy is first taken out, but do not increase as you age. Rather lifestyle factors can impact and change how much you have to pay (and will do so in line with inflation). This makes them cheaper in the long run, allowing for you to budget them in accordance with their relatively consistent amounts.
However, it does increase a little with inflation and often reverts to a stepped premium structure once you reach a certain age (usually 65). Your policy can’t be altered without resetting that premium though. which means if your circumstances change, your premium will go up permanently.
What Would Work For Me?
If that’s what you’re asking, it should come down to one question – how long will you hold the life insurance policy?
Are you planning on having it for years to come? A level premium might be the answer for you as it should save you money over the long term.
But if you’re after a short-term policy or one that you’re willing to renegotiate your policy later on, stepped premiums might be a better option for you.