Stepped premium vs Level premium

Primary difference between stepped and levelled premiums

Stepped premiums allow the buyer to get short term benefits such as lower premiums for a few months, after which the buyer has to pay higher premiums till the end of the term of the policy. Levelled premiums allow the buyer to get long term benefits such as balanced premiums for a long period of time or until the end of the term of the policy.

Income protection insurance benefits of stepped premiums

Stepped premiums are best suited for those buyers who want to enjoy the benefits of income protection insurance plans for a short time. Buyers who opt for 5 – 10 year contracts can opt for stepped premiums if they want to start off by paying low premiums and do not mind paying higher premiums as they age. Stepped premiums allow young buyers to enjoy the benefits of income insurance plans without being burdened with high premiums at first. This type of premium payment plan ensures that people who are new to income covers do not have to compromise on their lifestyle in order to pay premiums.

 Income protection insurance benefits of levelled premiums

Levelled premiums are best suited for those buyers who want to enjoy the benefits of income protection insurance plans for a long time while paying levelled premiums that are spread evenly over a long tenure. Buyers who opt for 20 year contracts can opt for this type of premium payment plan if they want to know in advance how much they have to pay, if they want to keep aside money every month for premiums while making a household budget and if they do not want to pay increasing premiums as they grow older. It should be noted that while levelled premiums are suited for buyers who opt for long term contracts, some insurers may require the policy holder to switch to stepped premiums towards the end of the contract after the buyer turns 50 years old.

5 Things to remember about premium payment plans

  • Income protection insurance plans offer a wide range of benefits to buyers provided that they pay premiums on time without fail. Buyers who miss one or more payments may be faced with problems such as rejected claims, lapsed policies and loss of benefits. Failure to notify the insurer of promotions, a job change or loss of job can also affect your policy adversely mainly because any change in your salary or designated post at work will affect your premiums and insurers will only protect you, provide you with benefits and offer compensation benefits if all the documentation is in order.
  • Stepped premiums are not recommended for older buyers since paying higher premiums when a person gets older can be a tough task especially if the person has lost his job, has pre-existing medical conditions or is affected by inflation. Levelled premiums tend to give buyers a sense of security since knowing how much to pay and when, allows the buyer to plan in advance, keep aside money for premiums and also keep money aside for other emergencies.
  • Premium payment plans can be chosen by the buyer at the time of applying for the policy however; some insurers may allow buyers to switch to a different type of premium payment plan later on as well. This is an added perk that may not be offered by all insurers hence buyers should check this option before they commit to purchasing the contract they are interested in. it should be noted that there is a price difference between indemnity and agreed value contracts hence the premiums you pay will be affected as well. This is something all buyers must remember, if they switch from one contract to another since premium payment plans and their terms tend to be confusing at times.
  • To know how much you will have to pay the insurer towards premiums, you should check the product disclosure statement which is a legal document that will be handed over to you once you are sure which contract you require. This document will elaborate on the premiums payment structure along with additional fees if any. This document will also help you understand other miscellaneous terms of the policy if there are any exclusions such as sports injuries, if there are any premium loading fees such as $500 per claim or if the policy has any limitations that you must know about.
  • Although most buyers strongly believe that they will pay premiums on time, whenever a payment is due, the truth is that due to inflation, limited income and other reasons, payments do get ignored by people which leads to the problems mentioned above, to prevent such situations from arising, income insurers offer buyers the option to pay premiums in advance every year online or via the phone. Paying premiums in advance can also be beneficial for buyers since advance premium payments can make the policy holder eligible to receive a discount on the lump sum amount. The amount of discount will depend on the cost of the premiums and other factors.

Getting help when you need it

While everyone believes that purchasing insurance is a simple task, the truth is that, the terms and conditions of income protection insurance plans can be tricky to understand for most people. Hence if you have a question, need clarification for doubts or need financial or tax related advice then it is always recommended that you get private help right away. Insurance agents also offer a reasonable amount of help when buyers have questions; however for complicated questions such as tax implications of standalone, combined plans or plans under superannuation funds, it is always best to get help from an expert. Some of the other areas that an expert can help you in understanding the eligibility criteria for application and compensation payments for superannuation income cover. Remember, superannuation income covers are easier to apply for and offer a few additional benefits; but without understanding the eligibility criteria of these plans it is best not to take a hurried decision.


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