Understanding Stepped Premiums: A Detailed Guide

When it comes to life insurance, understanding how life insurance premiums are influenced and calculated is crucial. One such type is stepped premiums, which increase each year in line with your age. This approach helps insurance companies manage their risk. Generally, the older you get, the higher your stepped premium will be. At this point, you might choose to continue paying the increased premium, reduce your insurance coverage, or even cancel your policy altogether.

Stepped vs. Level Premiums

Stepped premiums are initially less expensive than level premiums. However, depending on when your insurance was implemented (considering your age and occupation at the time), a stepped premium may eventually become more expensive than a level premium. This shift depends on factors like your age, occupation, and the duration of your policy.

Factors Influencing Stepped Premium Increases

Several factors can cause your stepped premiums to rise:

Indexation

Indexation on your insurance (including Life, Total and Permanent Disability, Trauma, and Income Protection Insurance) will increase your premiums. As the amount of your insurance coverage increases, so will the corresponding premium, calculated based on the increase due to indexation and your age.

Government Stamp Duty

Changes to legislated government stamp duty in each State and Territory can affect the cost of your insurance premiums. Depending on your coverage, you may be legally required to pay stamp duty, which is reflected in your life insurance premiums.

Premium Rate Reviews

Life insurance companies periodically review premium rates. If the cost of coverage increases beyond the insurance companies’ expectations, a rate increase may apply to all customers. These revised premiums could result from an increase in claims or changes in the economic environment. In such cases, the insurance company will notify clients of these changes.

Expiry of Discounts

In certain circumstances, stepped premiums may increase due to the expiration of initial or term discounts on policies like Life, Total and Permanent Disability, Trauma, and Income Protection Insurance.

Policy Changes

Any changes you request to your policy in line with your evolving needs can also affect stepped premiums. These changes might decrease your premiums. For instance, you can remove optional benefits or have loadings reviewed if they have been applied to your policies.

Managing Increasing Premiums

If your policy increases have become burdensome, it’s wise to have your life insurance policy reviewed by Morgan Insurance Advisors—obligation-free. Before reviewing your policy, they will consider any changes to your circumstances, such as your medical history or occupation.

Feel free to reach out if you need more information or further assistance!