Stepped vs level life insurance premiums

Stepped and level are two ways of paying for the same promise. Under stepped, you pay roughly what it costs to insure you this year, which is very little at 30 and a great deal at 65. Under level, the insurer averages that cost across the whole period to your chosen expiry age and charges you the average every year.

Neither is inherently better value. What differs is when you pay. Stepped defers the cost, which suits a short need or a tight early budget. Level front-loads it, which suits a long need and protects you from the point where premiums become unaffordable.

The failure mode of stepped cover is well known in the New Zealand market: people take it out in their thirties, hold it happily for twenty years, and then cancel in their late fifties when the premium starts to bite — losing the cover at the age when a claim is most likely and when replacement cover is expensive or unobtainable.

The crossover is the point at which the total you have paid under level drops below the total you have paid under stepped. It is sensitive to one assumption, and that assumption is usually set too low.

At 3% a year, stepped only overtakes level near the end. At 8% — which is well within the range New Zealand insurers actually apply — the same stepped premium reaches roughly $1,720 by 65 rather than $970, and the cumulative crossover arrives around a decade earlier. That is the number the decision should turn on.

These are the details that decide whether the cover does what you expected. Read them before you compare on price.

• The growth rate used in any stepped illustration you are shown.
• Whether the comparison runs to the age you will really hold cover, or stops early where stepped still looks good.
• Whether indexation is switched on in the model — CPI increases apply to both structures and compound.
• What happens at the level policy’s expiry age: does it end, or convert to stepped at attained age?
• Whether the insurer can reprice level rates for a class of policyholders, and on what notice.
• Whether you can split cover — part level, part stepped — inside one policy.

Every New Zealand insurer writes life insurance in new zealand to its own wording, and the words are where the money is. Two policies that look identical on price can pay very differently when it matters. Closing that gap is the entire job of an adviser.

• Stepped rate tables differ between insurers, so the crossover point is insurer-specific, not universal.
• Some insurers allow a stepped-to-level conversion later without new medical evidence; most impose an age limit on it.
• Splitting cover across structures often beats choosing one, particularly where a mortgage will be repaid well before the children are independent.
• Where affordability is genuinely tight, a smaller level sum insured usually beats a larger stepped one that will be cancelled at 58.

There are three ways to buy life cover in New Zealand, and they are not equivalent. You can buy direct from one insurer, which means you see one product range and one underwriting appetite. You can buy through your bank, which usually means a single insurer’s product sold under the bank’s brand, often with narrower definitions. Or you can go through an adviser, who quotes several insurers at once and is required to put your interests first.

The premium you pay is the same either way. Insurers build adviser commission into their pricing whether or not an adviser is involved, so going direct does not get you a discount — it just removes the person whose job is to argue your corner at application and at claim time.

• An adviser can see which insurer is currently taking your health history on standard terms, and which one will load or exclude it.
• An adviser can structure cover across two insurers if that produces a better outcome than putting everything with one.
• An adviser handles the underwriting back-and-forth, and is the person who chases the claim when a family is least able to.
• An adviser has to document why the recommendation suits you, which is a written record you can hold them to.

We are a referral service, not an insurer. We do not quote premiums and we do not sell policies. What we do is put you in front of one licensed New Zealand adviser who can compare the market properly.

1. 1

   You tell us what you are looking at

   The form takes about a minute. Nobody asks for your medical history on a web form — that conversation happens with the adviser, properly, and only once you have decided to proceed.

2. 2

   An adviser calls you

   A licensed New Zealand adviser talks through your situation: who depends on you, what you owe, what you already have in place, and what you are actually worried about.

3. 3

   They compare the market

   The adviser quotes across the major insurers, checks which of them will take your health history on the best terms, and puts the options side by side in writing.

4. 4

   You decide, in your own time

   There is no obligation and no cost to you. If the answer is that you already have enough cover, a good adviser will tell you that.