Stepped vs level premiums: how insurance costs change over time

When you take out personal insurance outside super, you'll usually be asked to choose how your premiums are structured. The two main options are stepped and level. Here's how the two structures work in general.

Stepped premiums

Stepped premiums are recalculated each year based on your age at the time. Because the risk of claiming generally increases with age, stepped premiums generally rise each year. They usually start lower than level premiums.

Level premiums

Level premiums are based on your age when the cover starts, and generally don't increase because you get older. They usually start higher than stepped premiums. Some policies switch level premiums to stepped at a set age.

What else can change the cost?

Neither structure fixes the price completely. Premiums can also change because of:

• Indexation, if your cover amount increases each year in line with inflation.
• Insurer rate changes, which apply to everyone holding the same product.
• Changes you make, such as increasing or reducing cover.
• Government charges, such as stamp duty in some states.

Inside super

Cover held through super, particularly default cover, usually has premiums set by the fund's arrangement with its insurer. These often change with age, and the fund can change them across its membership.