Stepped Premiums

Stepped premiums rise each year, primarily due to increasing age and the corresponding higher insurance risk. They are the most common premium structure for Australian life, TPD, trauma, and income protection policies.

Stepped premiums are also called yearly renewable premiums or age-based premiums.

How fast they rise

Annual increases vary across your lifetime:

• 3 to 7 percent in younger years
• 10 to 15 percent or more in your 50s and 60s as mortality and disability risks rise

Why they start so cheap

Stepped premiums start substantially cheaper than level premiums, often 40 to 60 percent lower for people in their 20s and 30s. This makes insurance affordable when budgets are tight and coverage needs are highest (young families, new mortgages).

The long-term trade-off

The trade-off is that premiums can become very expensive in later years, potentially forcing some people to reduce or cancel coverage when they may still need it most.

Who suits stepped premiums

Stepped premiums are typically used by:

• People expecting significant income growth over their career
• Anyone wanting maximum coverage now at minimum cost
• Younger people where the savings are largest
• People planning to reduce coverage as needs diminish (mortgages paid, children grown up)

How insurers price them

Insurers calculate stepped premiums based on:

• Current age
• Smoking status
• Occupation risk
• Health at underwriting

Rates are guaranteed for one year, then reset based on your new age. Some policies allow conversion from stepped to level premiums at certain ages without medical underwriting.

Common pairings

Stepped premiums are often used for income protection (where coverage typically terminates at retirement anyway), with level premiums considered for permanent needs like life insurance.