Stepped vs. Level Life Insurance Premiums

Learn about the difference between stepped and level life insurance premiums with Savvy.

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, updated on July 10th, 2023       

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When it comes to life insurance, one important decision you'll need to make is whether to choose stepped or level premiums. Understanding the differences between these two options can help you make an informed decision about which one is right for you.

You can explore your options and find out which is the best premium structure for your needs and budget with Savvy. By learning more about your various options when it comes to life insurance, you’ll be in a better place to determine which is the best premium structure for your needs.

What’s the difference between stepped and level life insurance premiums?

Stepped and level premiums are two types of premium structures that insurance providers offer for life insurance policies. While both types of premiums offer benefits and drawbacks, understanding the differences between them can help you choose the best option for your individual needs.

Stepped premiums

Stepped premiums are a type of life insurance premium structure where the cost of the premium increases each year as the policyholder ages. This means that the premium starts lower when the policy is first taken out, but gradually increases each year. This is because the risk of death or illness increases as the policyholder gets older and the insurance company adjusts the premium to reflect this increased risk.

With stepped premiums, premiums will be cheaper in the early years of the policy if you’re young when you buy it, which can be helpful if you have other financial commitments. However, it can be more expensive as you get older, particularly if you’ve had health issues or a change in your occupation which increases your risk profile.


  1. May be more affordable initially.
  2. May be a good option for those who only need insurance for a short period.


  1. Premiums can increase significantly over time, potentially making them more expensive in the long run.
  2. May not always be as good an option for those who need insurance for a long period.

Level premiums

Level premiums in life insurance remain consistent throughout the policy term. Unlike stepped premiums, which increase each year as the policyholder ages, level premiums do not change based on the policyholder's age or health status. The only increase in these premiums will come as a result of inflation.

Level premiums are generally more expensive than stepped premiums initially but can be more cost-effective in the long run, especially for younger policyholders. This is because the premiums are calculated based on the average cost of coverage over the policy's lifetime, rather than increasing each year to reflect your increased risk of mortality.


  1. Offer long-term cost certainty, as premiums won’t increase with age.
  2. May be a good option for those who need insurance for a longer period.


  1. May be more expensive initially.
  2. May not be as good an option for those who only need insurance for a short period.

How do I choose between stepped and level premiums?

When choosing between stepped and level premiums in life insurance, there are several factors to consider, including the following:

  • Consider your budget: stepped premiums start lower than level premiums, but they increase over time. If you have a tight budget, you may prefer the more affordable stepped option in the short term, but you should be prepared for higher premiums in the long run. Level premiums may cost more initially, but they remain fixed for the life of the policy.
  • Think about the long term: if you plan to keep your policy for a long time, level premiums may be a better choice. This is because they are fixed, which means you can budget for them over the life of the policy. Stepped premiums in the long term may cost more, so those who are only looking for short-term coverage may view it as the preferred option.
  • Compare your options: by considering more options on the market, you can gain a better understanding of how much different policies may cost you based on either stepped or level premiums.

Ultimately, the choice between stepped and level premiums will depend on your circumstances and preferences. It's important to consider your options carefully before buying your policy.

What are hybrid premiums and how are they different from stepped and level premiums?

Hybrid life insurance premiums are a newer type of premium structure which combines features of both stepped and level premiums. This type of premium structure aims to offer policyholders more flexibility in their life insurance premiums.

Under a hybrid premium structure, the policyholder pays a cheaper stepped premium for the initial period of the policy, although this may be higher than standard stepped premiums. After this period (typically once a set overall premium figure is reached), the structure shifts to a level premium. This means that the policy will no longer increase in price until you reach a certain age, such as 65 to 70, when they return to stepped premiums.

One of the key benefits of hybrid premiums is that they can help policyholders save on the cost of life insurance in the early years of the policy when financial responsibilities are often at their highest while still providing long-term security compared to a pure stepped premium structure. The cost of the premium and the period for which each component is payable will vary depending on the policy and the insurer.

It's important to note that hybrid premiums aren’t offered by all insurers and it's essential to review the policy details and terms and conditions carefully before choosing your policy and whether dedicated stepped or level premiums are the best option for your circumstances.

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Savvy does not compare all life insurance policies or providers currently operating in the market. Any advice presented above or on other pages is general in nature and doesn’t consider your personal or business objectives, needs or finances. It’s always important to consider whether advice is suitable for you before purchasing an insurance policy.

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