Stepped vs Level Premiums - Financial Jargon Explained

When taking on a new personal insurance policy, you will be faced with the option of stepped or level premiums so what does that actually mean?

Stepped = The cost of your insurance will go up each year due to your age and increased level of risk to the insurer. If you drew the cost of these premiums, they would look like a flight of stairs. These are generally cheaper than level premiums (initially).

Level = The cost of the insurance is not projected to change. If you drew this, there would be a straight line. Level insurance premiums are usually higher than stepped premiums (initially)

What the point?

Stepped premiums are often lower in the early years of holding the cover but become more expensive if you hold the insurance over a longer period. The usual length of time it takes for a level premium to become cheaper than a stepped premium is 10-15 years.

What is right for you?

That usually depends on your age or how long you are going to need a particular amount of insurance for.