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Stepped vs Level Premiums: What’s the Difference in 2026?

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Written by Russell Cain

| Updated: 10 March 2026

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Changes to Life Insurance Premium Labels (2024–2026 Update)

From 31 December 2024, Australian life insurers began using updated premium terminology following industry reforms led by the Council of Australian Life Insurers (CALI), along with APRA and ASIC.

These changes were introduced to make it clearer that premiums can still change over time, regardless of the structure you choose.

Old vs new premium terms

• Stepped premiums are now called variable age-stepped premiums
• Level premiums are now called variable premiums

Note that only the labels changed. The way premiums are calculated has stayed the same. The new terminology is designed to improve transparency and help Australians better understand how their premiums may change over time.

Variable Age-Stepped Premiums (Previously Stepped Premiums)

Variable age-stepped premiums are calculated based on your age at each policy anniversary. As you get older, the likelihood of a claim generally increases, and your premium is adjusted to reflect that higher risk.

This means your premiums typically start lower when you first take out the policy, but they increase each year as you age. Over time, these increases can become more noticeable, especially in your 50s and beyond.

How variable age-stepped premiums are calculated

Your premium is usually reviewed each year and may change based on several factors:

• Age: As you move into a higher age bracket, the insurer’s risk assumptions increase.
• Cover increases: If your policy includes CPI or indexation increases, your cover amount rises, which can increase your premium.
• Base rate changes: Insurers may adjust their pricing based on claims experience or industry-wide data.
• Policy fees or government charges: Changes to policy fees or stamp duty can also affect what you pay.

Pros and cons of variable age-stepped premiums

Variable Premiums (Previously Level Premiums)

Variable premiums are generally based on your age when you first take out the policy. Instead of increasing each year simply because you are getting older, the cost is designed to be spread more evenly over time.

This usually means your premiums start higher than variable age-stepped premiums, but they may be more stable over the long term. Variable premiums are often chosen by people who plan to keep their cover for many years and want greater predictability in their insurance costs.

It is important to understand that variable premiums are not fixed forever. Your premiums can still change due to factors such as increases in your cover, insurer pricing adjustments, or changes to government charges.

How variable premiums are calculated

Your premium may be adjusted over time based on several factors:

• Entry age: The initial premium is based on your age when you first apply for the policy.
• Cover increases: If your policy includes CPI or indexation, your cover amount may increase each year, which can raise your premium. Important to note CPI increases in cover are priced at your age at the time of the increase.
• Base rate changes: Insurers may adjust premiums due to claims trends or pricing reviews.
• Policy fees or government charges: Changes to fees or stamp duty may affect your premium.

Pros and cons of variable premiums

When Does a Variable Premium Become a Stepped Premium?

Variable premiums do not remain the same forever. With many life insurance policies, the premium structure will switch from a variable premium to a variable age-stepped premium at a certain age, often around 65 or 70, depending on the insurer and the specific policy.

Up to that point, your premiums are generally based on your entry age, with adjustments for factors such as indexation, base rate changes, or policy updates. Once the policy reaches the specified age, the premium is recalculated each year based on your current age, just like a variable age-stepped premium.

Because insurance risk increases as you get older, this transition can lead to noticeable premium increases later in life. Understanding when this change occurs is important for long-term financial planning. Reviewing your policy terms early can help you prepare for potential cost increases and consider options such as adjusting your cover or exploring alternative premium structures before the switch takes place.

Comparing Variable Age-Stepped and Variable Premiums

Which Is Cheaper Over Time?

The cost difference between variable age-stepped and variable premiums usually depends on how long you keep your policy. While variable age-stepped premiums often start out cheaper, the cost typically rises each year. Variable premiums usually begin at a higher cost (3-4 times higher), but may become more affordable over time.

To compare the true cost, it is important to look at the cumulative premiums paid, not just the annual premium in a single year. This is known as the breakeven point. The breakeven point is when the total amount paid under a variable premium becomes lower than the total amount paid under a variable age-stepped premium.

For many policies, this break-even point may occur between 10 and 15 years, though it varies based on factors such as your age, coverage amount, health, and insurer pricing.

General cost trend over time

• First 5–15 years: Variable age-stepped premiums are usually cheaper.
• After 15+ years: Variable premiums may become more cost-effective overall.
• Long-term (to age 65 or beyond): Variable premiums often result in lower total premiums, provided the policy is kept long enough.

It is important to remember that premiums are not guaranteed under either structure. Insurers can adjust pricing due to claims experience, economic conditions, or regulatory changes, which may affect the breakeven period. As a result, the right choice usually depends on your expected time horizon, affordability, and long-term financial goals.

Hybrid Premiums

Hybrid premiums combine features of both variable age-stepped and variable premiums. They are designed for people who want lower initial costs, but also want more stability in their premiums later in life.

With a hybrid structure, premiums usually start under a variable age-stepped approach, meaning they begin lower and increase each year. At a certain point, typically when the stepped premium becomes higher than the equivalent variable premium, the policy automatically switches to a variable premium structure.

This change is designed to limit the impact of large age-based premium increases in later years, while still keeping early premiums more affordable.

How hybrid premiums work

In a typical hybrid structure:

• Premiums start on a variable age-stepped basis.
• Over time, as the stepped premium rises, it reaches a point where it equals or exceeds the variable premium.
• At that point, the policy automatically converts to a variable premium structure.
• The premium then follows the variable structure until a set age or policy milestone, after which it may revert to a stepped structure again, depending on the policy terms.

Currently, hybrid premium options are limited and may only be available through certain insurers.

Pros and cons of hybrid premiums

Why Premiums Increase Over Time

Regardless of whether you choose variable age-stepped or variable premiums, it is important to understand that premiums can still increase over time. This is because life insurance pricing is influenced by several factors beyond just your age.

Some of the most common reasons for premium increases include:

• Indexation or CPI increases: Many policies automatically increase your cover each year to keep up with inflation. As your cover amount rises, your premium usually increases as well.
• Insurer repricing: Insurers may adjust their base premium rates based on claims experience, economic conditions, or changes in risk trends across their customer base.
• Policy changes: If you increase your cover, add optional benefits, or make other changes to your policy, your premium may also rise.
• Government charges: Changes to stamp duty or other taxes can affect the total cost of your premium.

Even with variable premiums, which are designed to be more stable over time, increases can still occur due to these factors.That is why it is important to review your policy regularly and understand how your premiums may change in the future.

Variable age-stepped premiums may suit you if:

• You only need cover for a shorter period, such as while paying off a mortgage or raising children.
• You want the lowest possible premium at the start of the policy.
• You prefer flexibility to adjust or switch policies in the future.
• You expect your income to increase over time and can manage higher premiums later.
• Looking to decrease cover as you get older, and your responsibilities lesson.
  

Variable premiums may suit you if:

• You plan to keep your cover for 10 years or longer.
• You want more predictable long-term costs.
• You prefer easier budgeting with smaller annual increases.
• You want to minimise the risk of premiums becoming unaffordable later in life.

Your ideal premium structure will depend on your personal goals, financial situation, and how long you expect to keep your cover. If you are unsure, comparing quotes or speaking with a qualified adviser can help you make a more informed decision.

Can You Switch Between Premium Types?

In many cases, you can switch between premium structures, but it is important to understand how this may affect your costs.

If you switch from a variable age-stepped premium to a variable premium, your entry age is reset to your current age. This means the new premium will be calculated based on how old you are at the time of the switch, which can result in a higher starting premium than if you had chosen a variable premium from the beginning.

Because of this, switching to a variable premium later in life may reduce some of the long-term cost benefits that the structure is designed to provide.

You may also be able to switch from a variable premium to a variable age-stepped premium, depending on your insurer and policy terms. This can sometimes reduce your current premium, but it may lead to higher costs over time.

Before changing premium structures, it is important to:

• Review your policy terms and any applicable conditions.
• Consider how long you expect to keep your cover.
• Compare the long-term costs of each option.
• Seek advice if you are unsure which structure is most suitable.

Making changes without understanding the long-term impact could result in higher premiums or reduced value from your policy.