Level Premium Life Insurance is the better financial choice over the longer term. The main reason is that level premium life insurance starts off at a higher premium but does not increase each year. Premiums are typically guaranteed and fixed for the specified term.
Level Premium Life Insurance
If you plan on keeping your life insurance for longer than ten years, then you should seriously consider Level Premium Life Insurance in whole or part of your cover. You may not have the budget for all of your cover to be on a Level Premium, but you should look at having some of your cover on this type of premium structure.
Some companies offer Level Premium term options for example fixed for ten years or to age 60, 65, 70 and 80 and some insurers may offer more extended terms. Any of these options should be considered so as you get older; your premiums will still be affordable.
Why do I need life insurance for so long?
Gone are the days when you reach age 65, the mortgage is paid off, and you retire. These days we are more active, have more career options, better health care and of course a lot of us are still carrying some form of debt or have a financial responsibility to someone else.
You may have other reasons why you should hold Life Insurance cover for longer, but if you do need to, then you need to make sure the cost to you is affordable.
What’s the difference with what I already have?
Most Life Insurance is what we called stepped premium which means that each year as you get older your premiums increase. This premium option is still a great option because you can get more cover for your money when you’re younger, but as you get older, it’s more expensive.
If your premiums increase every year, then you likely have this type of cover.
Let’s say you wanted to buy $500,000 of life insurance for a Male, Non-Smoker and is forty years of age. I have provided an illustration from one insurer just to show you how this works. The premiums may change slightly depending on the insurer, how old you are, your health etc. Below are two options as follows:
Stepped Premium (Increasing each year)
- The first year the monthly premium is $34 per month
- By year 10 your monthly premiums will be $80 per month
- By age 60 your monthly premiums will be $260 per month
- By age 65 your monthly premiums will be $521 per month
If you kept this policy until age 70, you would have paid a total of $96,990 in premiums
Level Premium (Fixed and Guaranteed to age 70)
- Your monthly premium is $94 and will stay at $94 until age 70
If you kept this policy until age 70, you would have paid a total of $34,196 in premiums
Everyone is different
The above examples are quite extreme, but they do make the point that Level Premium Life Insurance is cheaper over the longer term.
Whether you should have Level Life Insurance Premium or Stepped Life Insurance Premium depends on your situation. If you would like advice about what is right for you and the blend you should have between both options, then contact us to chat, and we can certainly review what you have and provide professional advice, so you can still have and afford the cover you need when you need it.