Stepped Or Level Premiums For Term Life Insurance - 5 Considerations
The insurance industry can be pretty complex ..
. especially for those of us that speak 'English', not 'Accountant'! There are quite a few new concepts to understand and explore when getting term life insurance for the first time, and one of the most important is the premium payment style.
Today we check out 5 important considerations for people in different situations, to help you determine whether stepped or level premiums will be a better option for your term life insurance.
How long are you planning to keep the cover?
If you mainly want term life insurance while you are young, to help cover the mortgage and provide for young kids when you die, you could be better off with stepped premiums.
If you mainly want term life insurance to add to your estate when you die (so you are planning to keep the cover for your entire life), level premiums will be a better idea - potentially saving you many thousands of dollars. Experts say that cover held for more than 10 years should be paid via level premiums, for less than 5 years stepped premiums are preferable.
Will you always want the same level of cover?
Most people need less term life insurance cover as they get older - they have fewer debts, fewer responsibilities and more assets to draw on. If you are willing to reduce your level of cover in the future, stepped premiums might be a good idea. You can reduce your level of cover to help keep premiums affordable.
Do you have kids?
If you have young children, then you probably also have little spare cash lying around! Stepped premiums can help ease the financial pressure while your kids are young, and they cost more as your ability to pay more increases.
Do you have savings or enough super?
Stepped premiums can get pretty expensive as you age, costing up to $6000 per year. If you want to keep your cover until you die, make sure you have the means to pay your premiums as you grow older.
Some plans automatically change
For example, AMP Insurance's Flexible Lifetime Protection cover automatically changes to stepped premiums after the insured turns 65. This is common across most insurers as well. If you are closer to 65 in age, you may be better off choosing stepped premiums for your term life insurance from the beginning.
by: Hilary Briss
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