- Stepped Premiums will start off low and increase over time. Suitable for someone with limited disposable income in early years.
- Level Premiums remain the same over time. May benefit those who want to know exactly what their repayments will be.
Stepped Premiums Explained
The concept of stepped premiums was named in this way because its value is constantly being calculated, specifically with each of the renewal of the policy of the owner and in most of the situations it encounters a serious increase that is proportional to a wide range of risk factors, including the age.
Furthermore, you should also be aware of the fact that you might encounter some very important situations during which the level of the premium might actually decrease because of your age. This might happen because most of the insurers support the fact that a young man who decided to settle down and create a family is less of a risk, for example.
Understanding Level Premiums
On the other hand, there are also a couple of important aspects you should be aware of when it comes to this concept known under the name of level premiums. This value is usually calculated by considering your age right at the start, while this kind of premium is very likely to remain consistent as you get older and chances for it to see a major chance are very low.
Furthermore, you will also be provided with the chance of making more payments at a time without affecting the actual value of your premium, For example, it can even increase your cover as long as your issuer decides to make a review of the whole contract, but this kind of situations are very rare and you must be really lucky to make it happen to you.
What are the Differences Between Stepped Premiums and Level Premiums?
In terms of the differences, you are totally recommended to read the information presented in the table below carefully if you want to get the best out of your financial experience and take the decision that are totally right for you and ideal for your material condition and your budget. In this way, you will only have advantages and you will be able to enjoy yourself more.
- Can be regarded as a variable mortgage
- Is calculated more than once
- The value of the premiums is likely to change a lot
- Can be regarded as a fixed mortgage
- Recalculations of the premium are very unlikely to happen
- Changes in the premium can only happen when your contract is being reviewed
Deciding which Life Insurance Premium Option is the One for You
Choosing between which life insurance premium option suits you best may appear to be simple, however, it can be quite difficult to decide as there are benefits to be gained either way. For instance, many will depend on your age, the total term of the cover you're taking out and the budget you're working from now and that which you expect you'll be working from in the future. Points you'll have to consider will therefore have to include the following:
Level premium payments are best suited to long term insurance contracts. This is because the premium you pay in the beginning will be the same as you will be paying at the finish. You will have to pay a higher premium than the stepped option initially but when you get older you'll be paying much less. The occasion when this might not be so preferable will be if you are strapped for cash and on a low wage initially but expect your earnings to increase substantially in later years where you feel the higher premium rate won't be a problem.
Stepped premiums are ideally suited to short term insurance cover as the increase in premium as you age won't be as severe over a few short years as it is over a long period. It is often said that any insurance taken out for up to 10 years, or less, should be paid for as a stepped premium.
Blended premium payments are yet another option that's becoming popular. This is a bit like mixing a variable interest rate mortgage with a fixed interest rate. A blended premium is usually made up of an initial stepped premium to take advantage of the lower rate at that time but changing to a level premium at a later date to allow you to handle the cost better in your latter years.
If you take these options into account and realise the effect they'll have on your ability to keep the cover going as you get older, you'll find the right decision much easier to make. It is crucial for all buyers to consider their own situation and how this may change into the future in years to come when considering what option is best for you.
Consider Your Own Situation When Assessing the Appropriate Premium Structure
In order to find out even more, it is recommended for you to discuss more aspects and any of your doubts with a financial expert, who will be able to provide you with some very useful information and clear all of your possible doubts. So make sure you take full advantage of the information presented to you in this article and start making a difference.