One of the most important decisions you need to make when you are getting life insurance is whether you want it on a stepped or level premium. The right choice can save you 10's of thousands of dollars!
What is the difference?
The above graph shows a very simply picture of the difference in the cost of the premiums over your lifetime.
Stepped Premiums:
Benefits
Lower cost at the beginning of a policy. Therefore, for a family who is struggling to get by as it is, a low cost stepped policy is better than not having insurance at all.
You pay a premium based on the level of risk associated with your age (the older you get the more chance of a claim thus the higher the premium you pay).
Good for short term policy holders (to pay off a short term debt).
Disadvantages
Premiums rise substantially as you get older. By the time you are 50+, insurance may be too expensive to keep and this is when you are most likely to need it (and claim on it).
Level Premiums:
Benefits
Premiums remain constant until you're 65.
Huge cost savings if you hold the policy for a longer term.
Security - you know that when you're 50+ you will be able to afford insurance as you have already locked in the price.
Disadvantages:
You pay a little bit more at the beginning of the policy. At the end of the day, choosing between the two types of premiums depends on your affordability in the early stages and the amount of time you will need to hold the insurance for. If you can afford level premiums initially, and you are going to hold insurance for many years in the future, no doubt level premiums will work out best for you.
If you already have life insurance, it's time to find out what type of premium you are currently paying and see if it is best for you.