When you buy life insurance in New Zealand, you choose how your premiums are structured: stepped or level. This decision affects how much you pay now, how much you pay in 20 years, and whether your cover stays affordable long-term.
Stepped Premiums
Stepped premiums increase each year as you age. They start low and get progressively more expensive — reflecting the statistical reality that the older you are, the more likely you are to die.
How stepped premiums work
At age 30, a stepped premium for $500,000 of life cover might be $35/month. By 45, it could be $90/month. By 55, $200/month. By 65, $450/month or more.
Most NZ life insurance is sold on stepped premiums. Insurers reset the rate annually (or sometimes every 5 years) based on your new age and the insurer’s current rate book.
Who stepped premiums suit
- Younger people who want low upfront costs
- People who expect their need for cover to reduce over time (mortgage paid down, children grown)
- Those who plan to reduce their sum insured as their financial obligations shrink
- Anyone who doesn’t plan to hold the policy past their mid-50s
Level Premiums
Level premiums stay the same throughout the policy (though insurers can change them if they reprice the book for all policyholders — this is rare but possible). You pay more than a stepped premium in the early years, but significantly less in the later years.
How level premiums work
At age 30, a level premium for the same $500,000 cover might be $75/month — more than the stepped premium. But at 55, you’re still paying $75/month instead of $200+. Over a 30-year policy, the level structure often costs less in total.
Who level premiums suit
- People who plan to hold the same cover for 20+ years
- Those who want cost certainty and no surprises
- Anyone whose financial need doesn’t reduce much over time
- People approaching middle age who want to lock in current rates
Break-Even Analysis
The crossover point — where cumulative level premiums become cheaper than cumulative stepped premiums — typically occurs somewhere between years 12 and 20, depending on your age when you start.
Example: $500,000 cover, 30-year-old male, non-smoker (indicative figures)
| Year | Age | Stepped (cumulative) | Level (cumulative) |
|---|---|---|---|
| 1 | 30 | $420 | $900 |
| 5 | 35 | $2,700 | $4,500 |
| 10 | 40 | $7,800 | $9,000 |
| 15 | 45 | $16,200 | $13,500 |
| 20 | 50 | $30,000 | $18,000 |
| 25 | 55 | $54,000 | $22,500 |
These are illustrative only — actual premiums vary by insurer, health, and occupation.
In this example, level premiums break even around year 13–14. After that, level becomes cheaper — sometimes dramatically so.
The Key Factors in Your Decision
1. How long do you plan to hold the policy?
If you’re buying cover primarily to protect a 20-year mortgage, stepped premiums may make more sense — you’ll drop the cover before stepped becomes prohibitively expensive. If you want lifelong or long-term cover, level wins.
2. What is your sum insured likely to be in future years?
If you plan to reduce your cover over time (e.g. as the mortgage reduces), stepped premiums are often better since you’re reducing the base before it gets expensive.
3. Can you afford level premiums now?
Level premiums cost more upfront. If the higher premium means you buy less cover than you need, stepped premiums with full cover are better.
4. What’s your occupation and health trajectory?
Health changes can make it hard to switch insurers or restructure policies later. Locking in level premiums when you’re young and healthy provides certainty — you can’t be re-underwritten on your existing policy.
Can You Change Premium Structures Later?
Changing from stepped to level (or vice versa) mid-policy typically requires re-underwriting — the insurer will assess your current health status. If your health has changed, this could lead to exclusions, loadings, or denial.
This makes the initial choice important. If in doubt, discuss with a licensed financial adviser.
Inflation and CPI Linking
Most NZ policies offer an inflation linking or guaranteed insurability option — your sum insured increases annually with CPI (or a fixed percentage) without re-underwriting. This is worth considering regardless of premium structure, especially on level premium policies where the real value of your cover would otherwise erode over time.
Bottom Line
| Stepped | Level | |
|---|---|---|
| Starting cost | Lower | Higher |
| Long-term cost | Much higher | More stable |
| Best for | Short-to-medium cover needs | Long-term cover needs |
| Cost certainty | Low | High |
| Common in NZ | Yes — most policies | Less common but available |
For most people under 40 buying cover they plan to hold for 20+ years, level premiums are worth serious consideration. Get quotes for both and model the break-even point for your situation.
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