Stepped Premiums
Stepped premiums are insurance premiums that generally increase as you get older. They often start lower than level premiums, making them a popular option for people wanting to keep their initial insurance costs down.
Stepped premiums are one of the most common ways to pay for insurance in New Zealand. With this premium structure, your premiums are calculated based on your age, which means they typically increase each year as you get older.
One of the main advantages of stepped premiums is their affordability when you first take out a policy. This can make it easier to obtain the cover you need while managing your current budget, particularly if you're buying your first home, starting a family or establishing your career.
However, because premiums increase over time, the cost can become significantly higher in later years. For this reason, stepped premiums are often best suited to people who expect their insurance needs to change over time or who may not intend to keep the same level of cover for several decades.
It's important to remember that premiums can also change for reasons other than age and increase in cover levels such as inflation, policy updates or insurer pricing changes. An adviser can help you compare stepped and level premiums to determine which option best suits your financial goals and long-term plans.
Why It Matters
Choosing the right premium structure can have a significant impact on the affordability of your insurance, both now and in the future. Understanding how stepped premiums work can help you make an informed decision that fits your budget and lifestyle.
Common Misunderstandings
"Stepped premiums stay the same every year."
No. They generally increase as you get older and increase in cover levels, as well as potentially changing due to inflation or insurer pricing updates.
"Stepped premiums are always the cheapest option."
They usually have lower initial premiums, but over the long term they may cost more than level premiums.
"Higher premiums mean I have more cover."
Typically yes. The increase is generally related to cover amounts and age and other pricing factors such as claim history within the insurer and likelihood of claiming.
"I can never change to level premiums."
Some insurers allow you to change your premium structure, although this depends on your policy and individual circumstances.
FAQs about Stepped Premiums
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Stepped premiums are calculated based on your age and generally increase each year as you get older. Sadly as we get older, we are more likely to make a claim.
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Stepped premiums usually start lower but increase over time, while level premiums start higher but are designed to remain more stable over the long term.
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They may suit people who want lower upfront insurance costs or who expect their insurance needs to change over time.
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This depends on your insurer and policy. Your adviser can explain the options available to you.
The right premium structure depends on your budget, your goals and how long you plan to keep your insurance. If you're unsure whether stepped or level premiums are the better choice, talk to a New Vision Financial Services adviser. We'll help you compare your options and choose a solution that works for you both now and in the future.