Should you convert your stepped life insurance policy to a level premium?

Should you convert your stepped life insurance policy to a level premium

?

At the time you take out life insurance you are able to select the type of premium that best matches your situation. In brief, you can have a "stepped" life insurance premium, or a "level" life insurance premium. The difference is simply that the stepped premium (sometimes also called a "rate for age" premium) will increase every year with age. On the other hand, a level life insurance premium will not increase at all it will remain exactly the same from year to year. When the life insurance policy starts, the level premium will be higher than the stepped premium, however because it does not increase with age, over time it is much more cost effective.

The best option to select comes down to your individual situation. If you only need cover for a short period of time (like around two or three years) you will be best off with the lower initial cost of a stepped premium, while if you want the insurance for as long as possible, a level premium is likely to be more suitable.

Often, people start with a stepped premium (because of the lower initial cost), but over time, realise that the level option will probably be better long term. So, what should you check before changing?

First, you need to make sure that the level premium will actually be more cost effective. This should be easy to calculate if you know the number of years that you are likely to need the insurance for. Then you can get a projection of the stepped life insurance premiums over this time and compare these with the level option and easily see which is cheaper.

Next, it's important to make sure your insurer allows you to make the change without any kind of medical assessment. Most life insurers will allow this however it pays to check. In the same way, make sure that your policy terms and conditions are not changed if you switch.

These are a couple of the most important points to check and your life insurance broker will be able to make sure there are no other potential pitfalls.

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