Hybrid Premiums

Hybrid Premiums, also referred to as ‘Optimum Premiums’ is a mixture between stepped and level premiums. Your policy goes from a higher than normal stepped style premium to a level style premium. Hybrid premiums have only recently been introduced as a third premium option and are currently only made available by two insurance companies in Australia.

When is this option available?

This option is only available with select life insurance companies, as it is relatively new to the market. It would be best to specifically request this option from the consultant you are discussing your insurance options with.

Furthermore, there may be age restrictions on when this premium structure is available to you, for example, you may be required to be older than 35.

How do hybrid premiums work?

Your policy is converted from a stepped style premium to a level style premium when your stepped premium reaches a pre-determined price (which is higher than the level premium would have been). This is because the stepped premium was much cheaper at the start of your policy, you now have to pay more for the level style premium.

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As hybrid premiums are a combination of both stepped and level premiums, they blend elements of both.

Premiums Start off on a higher than normal stepped premium structure, increasing each year due to an increase in your age.

Generally, when they reach a pre-determined premium they convert to level style premiums and will not increase each year due to an increase in your age. At the age of 65 or 70, depending on your insurer, your premiums convert back to a stepped premium structure.

Conversion Age:

Generally, once your hybrid premiums convert from the stepped to the level premium style, they will again convert to a stepped structure at the age of 65 or 70, depending on your life insurance company. The reason for this conversion is that you pose a greater risk to the life insurance company as you age; therefore your premiums become more expensive to reflect this increased risk.

Important to note:

As Hybrid Premiums are generally an option, you have to pay an additional cost to get this premium structure type.

Like level premiums, Hybrid Premiums may still increase each year due to CPI increases, an increase in policy fees, base rates or stamp duty.

Who should consider hybrid premiums?

Hybrid premiums may be suitable for those who are unsure of the cover they want to have in the future or for those unable to afford level premiums in the short term and don’t want to pay higher stepped premiums in the long term. Hybrid premiums provide the option of long-term affordability.

Advantages	Disadvantages
Cheaper than level premiums in the short term.	More expensive than a classic level premium in the long term.
Cheaper then stepped premiums in the long term.	Once a policy has been in place for several years, you may not be able to change unless you start a new policy again.

If you need any assistance in understanding how hybrid premiums work, please contact us or request a quote above and we’ll inform you of its availability.

Published: January 24, 2017

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