Level vs Stepped Premiums

When it comes to life insurance, there’s no one-size-fits-all solution, but understanding the difference between stepped (rate-for-age) and level premiums can make a huge difference to how your policy works for you over time. The choice isn't just about cost today, it’s about control, certainty, and long-term value.

What are stepped and level premiums?

Stepped premiums (rate-for-age)

These premiums start off lower and increase each year as you age. They're often appealing for younger people, or those with tighter budgets, because they cost less at the beginning.

Level premiums

With level premiums, you lock in your premium rate based on your age at the time of application. The cost stays the same as you age, with only inflation adjustments (if you’ve selected indexation). While they usually cost more at the start, they don’t increase with age.

Why would anyone pay more now?

At first glance, stepped premiums seem like the smarter choice. But over time, they can climb significantly, sometimes to the point where people feel forced to cancel their policies just when they’re most likely to need them. That’s one of the key advantages of a level premium: you know what you’re going to pay.

In fact, if you’re someone who takes a long-term view, and you’ve got the budget to support it, level premiums can make a lot of financial sense. Over the life of the policy, you may end up paying less overall, especially if you maintain the policy into your 60s, 70s or even 80s.

How can you compare?

Say you take out a level premium life insurance policy at age 40. By using simple forecasting tools and knowing your cover amount, it’s possible to estimate the total cost of premiums you’ll pay over your lifetime. For most Kiwis, life expectancy sits in the mid-80s (Stats NZ, 2023), so you’ve got a fairly clear window to work with.

Because life insurance payouts are generally tax-free, you can compare the cost of your premiums with the expected benefit your loved ones will receive. While this shouldn't be viewed as an investment, it’s certainly a way to gain more certainty and control over your future financial planning.

Certainty when it matters most

In the early years, level premiums might feel like a stretch. But later in life, they can offer serious peace of mind. Imagine sitting next to a friend in their 70s who opted for stepped premiums, they may be paying thousands more per year than you are for similar cover.

And if you're already in a stepped premium policy, the good news is: you can usually convert to a level premium option without any further medical underwriting. That means you can secure the certainty of a level premium structure without needing to go through the full application process again.

Is it right for you?

There’s no denying that level premiums require a long-term mindset and some financial planning. But if you’re someone who values predictability, and you're thinking about your family’s financial future as a whole, not just next year’s budget, then it's definitely worth exploring.

If you’re considering converting your policy to level premiums, you can start the process right here: Get Started

Or, if you’d like to dig deeper into your insurance options, we’ve got more information to help you research: Personal Insurance

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Disclaimer: The information in this article is general information only and is not intended as financial, medical, health, nutritional, tax or other advice. It does not take into account any individual’s personal situation or needs. You should consider obtaining professional advice from a financial adviser and/or tax specialist, or medical or health practitioner, in relation to your own circumstances and before acting on this information.