Stepped vs level premiums: how life insurance prices change over time
Stepped and level premiums buy the same cover; they differ only in how the price behaves. A stepped premium is recalculated as you get older, so it starts lower and usually rises every year. A level premium is held the same, or nearly the same, for a set period, so it starts higher. Which costs less in total depends on how long you keep the policy.
Updated 2026-10-19 · last checked against its sources on that date
Written by Life Insurance NZ. No personal byline: the organisation is the author.What is a stepped premium?
A stepped premium is worked out again at each policy anniversary using your age at that time. Because the risk of a claim rises with age, the premium generally rises too, slowly at first and faster in later decades. It is the cheaper option in the early years of a policy.
- The rise comes from your age. Your health after the policy started does not usually change it, because underwriting was done when you applied.
- The premium can also change if the insurer changes its rates for everyone on that product, or if the sum insured is indexed.
- Stepped premiums are commonly offered on life, trauma, TPD and income protection cover.
What is a level premium?
A level premium is set so that it does not rise with your age for an agreed period: a number of years, or to a stated age. To do that it starts higher than the stepped premium for the same cover. Level does not always mean fixed: insurer rate changes and policy fees can still move it.
- What ends the level period. The policy says: a set number of years, or an age. After that the premium usually changes to stepped, at your age then, which can mean a large jump in one year.
- Indexation. If your sum insured rises each year with inflation, the extra cover is often priced on a stepped basis even when the original cover is level. Ask how your insurer prices the increase.
- Not every product or age. Insurers set their own rules on which covers can be level, and up to what age you can start a level period.
Which one costs more over the life of the policy?
Stepped costs less at the start and more later. Level costs more at the start and less later. So there is a point where the total paid on level becomes lower than the total paid on stepped, and whether you reach it depends on how long you keep the cover. We publish no crossover year, because it needs real premium rates for your age, cover and insurer.
| Stepped | Level | |
|---|---|---|
| Premium in the first years | Lower | Higher |
| Premium as you age | Usually rises each year | Held for the level period |
| If you cancel after a few years | You paid less | You paid more for the same cover |
| If you keep cover for decades | Total paid usually higher | Total paid usually lower |
| When the level period ends | Not applicable | Usually moves to stepped at your age then |
For a real comparison, ask an insurer or adviser for both quotes on the same cover, and for the projected premiums year by year. Ask whether the insurer can produce one; it is the only way to see the crossover for you.
Can you switch from stepped to level, or back?
Sometimes, on the insurer's terms. Moving from level to stepped is usually possible, and the premium is then based on your current age. Moving from stepped to level, if allowed, is usually priced at your current age, so it costs more the later you do it.
Before changing structure or moving insurer, check whether the change would mean answering health questions again. Cover underwritten years ago, at a younger age and on older health, cannot be recreated. If anyone recommends replacing a policy, ask them to set out in writing what you would give up.
Questions to ask about your premium
- Is my premium stepped or level, and for each cover on the policy?
- If level, when does the level period end, and what happens to the premium then?
- Does my sum insured index each year, and how is the increase priced?
- Can the insurer change rates for everyone on this product, and how often has it?
- What would my premiums be, year by year, for the next 20 years, on each structure?
Questions
Are stepped premiums a bad idea?
Not in general. They cost less in the early years, which suits people who need cover for a shorter period or who want the lowest premium now. They rise with age, so over a long period they usually cost more in total. Whether that matters to you is a question about your plans.
Do level premiums ever go up?
They can. Level premiums do not rise because you get older during the level period, but an insurer can usually change its rates for everyone on a product, and indexed increases to your cover may be priced separately. The policy document sets out what can change.
What happens at the end of the level period?
Usually the premium switches to stepped, calculated at your age at that point. Check your policy for the end date or age, and ask the insurer what the premium is projected to be afterwards.
Why did my life insurance premium go up this year?
On stepped cover, the most common reason is that you are a year older. Others are inflation indexing of your sum insured, a rate change by the insurer across the product, or the end of a level period. Your annual statement or the insurer can tell you which.
Sources
Read on 2026-10-19. If a source and this page disagree, the source is right.
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