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Stepped vs Level Life Insurance - What You Need to Know (2025 Guide)

​Compare stepped vs level life insurance premiums, see real examples and cost comparisons, and discover which option suits you best.
Updated 20 April 2025

Summary
  • Life insurance is critical for protecting your family's financial future, but choosing the right premium structure can significantly affect your overall pay.
  • Many New Zealanders are caught out when they don't understand the implications of stepped vs level cover as they get older.
  • Life insurance premiums come in two main types: stepped cover (premiums increase with age) and level cover (premiums stay fixed for a set term).
  • Our guide explains the difference and what it means, cost comparisons and real-world cases, and helps you decide which is best for you.

Level Life Insurance Video Explainer: MoneyHub Founder Christopher Walsh outlines what you need to know in the video below to help explain what you need to know:

Stepped vs Level Cover - Understanding the Differences

Below, we compare both options, detailing their pros and cons to provide clear insights for understanding which premium structure may suit your needs. MoneyHub Founder Christopher Walsh outlines what you need to know in a video example below using the LifeDirect tool:

1. Stepped Cover

Stepped cover, also called "rate for age" cover, is the most common life insurance pricing structure among New Zealand policyholders. Premiums start lower but increase annually (typically by 2% to 15%) as you age, reflecting a higher claim risk. Increases are based on your age, health, and insurer's pricing model and can vary significantly.

Why Choose Stepped Cover?
  • Cheaper upfront: Premiums are often (but not always) 50% lower than level cover in the early years, making it ideal for younger people or those who want Life Insurance protection but don't want to pay a lot of ongoing costs. Our video overview of policy costs using the LifeDirect tool explains what you need to know.
  • Flexible for short and medium-term needs: Stepped Cover is popular if you only need insurance for a specific period (e.g. until a mortgage is paid off or your children are financially independent). This means you can select "10 years cover" or go all the way up to the age of 65 (or older), as the video outlines above.
  • Widely available: Stepped cover is offered by major life insurers like AIA, Partners Life, Fidelity Life, and Chubb, as outlined by the LifeDirect life insurance policy comparison tool. 
  • Adjustable: You can often reduce or increase cover as your needs change, with premiums recalculated based on your age.

Pros of Stepped Cover include:
  • Affordable entry point: A 35-year-old might pay $25-$35/month for $500,000 cover, compared to around $40 for level cover.
  • Suits temporary needs: Ideal for covering short-term debts or life stages (e.g., 10 years until the bulk of a mortgage is paid down).
  • Lower initial commitment: Easier to start when income is limited, with the option to switch to level cover later (subject to underwriting).

Cons of Stepped Cover:
  • Rising costs: Premiums can double or triple by your 50s or 60s, making long-term budgeting challenging given the rising costs and other financial priorities.
  • Unpredictable increases: Annual hikes vary by insurer and can exceed 15% in later years, especially if health conditions develop.
  • Long-term expense: Over decades, Stepped cover's cumulative costs often exceed Level cover.
  • Cancellation risk: If premiums become unaffordable, you may need to reduce coverage or cancel, which means you'll be underinsured or not covered.​

2. Level Cover

Level cover locks in your premium at a fixed rate for a set term, typically for the next 10 years or until age 65, 70, or 80, regardless of age or health changes. After the term, policies usually switch to stepped premiums or require renewal. Level cover starts pricier than Stepped policy costs but offers cost stability.

Why Choose Level Cover?
  • Fixed premiums: No annual increases, making it easier to plan financially. You know what you'll pay every fortnight or month for the duration of the policy. This means you have financial security at a fixed price.
  • Long-term savings: Level cover is often cheaper overall if you keep the policy for 10+ years.
  • Predictable budgeting: Life insurance premiums add up over the years. Level cover usually suits those on fixed incomes or long-term financial commitments who want certainty.
  • Customisable terms: Policyholders can choose a term that aligns with their goals (e.g., next ten years, until retirement or children's financial independence).

Pros of Level Cover:
  • Cost stability: For example, a $1,000/year premium at age 40 remains $1,000 at 60, unaffected by age or minor health changes.
  • Cheaper over time: Total payments are often lower than stepped cover for long-term policies.
  • Inflation protection options: Some insurers (e.g., AIA) offer inflation-linked increases to maintain cover value without changing the premium structure.
  • Peace of mind: No surprises from annual hikes, ideal for retirees or those with fixed budgets.

Cons of Level Cover:
  • Higher upfront cost: Premiums can be 50%-100% more than stepped cover initially, which is offputting to many especially if they're new to life insurance.
  • Less flexible for short-term needs: Overpays if you only need cover for a few years.
  • Term limits: After the term (e.g., age 65), premiums usually switch to stepped, which can be costly if you still need cover.
  • Underwriting at renewal: New health issues could increase costs if you extend or adjust cover post-term.

Cost Comparison: Stepped vs Level Over Time

​Our table below shows an example of a $500,000 life insurance policy for a 35-year-old non-smoker, assuming a 3% annual premium increase for stepped cover (real increases may be higher):

Table 1: Cost Comparison: Annual and Total Premiums for a $500,000 Life Insurance Policy (35-Year-Old Non-Smoker, 3% Annual Stepped Increase)
Your Age Stepped Cost (3% Increase) Level Cost (Fixed) Level Saves You
35 $400 ($33/month) $800 ($67/month) -$400
45 $540 ($45/month) $800 ($67/month) -$3,500
55 $720 ($60/month) $800 ($67/month) $1,750
65 $970 ($81/month) $800 ($67/month) $6,880
Key Observations:
  • Stepped starts cheaper ($33/month), but Level saves $6,880 by 65 with fixed costs. However, real Stepped increases may be 2–15% based on industry conversations.
  • ​Early Years: Stepped cover is half the cost of level cover at 35 ($400 vs $800).
  • Crossover Point: Between age 55 and 65, stepped premiums exceed level premiums annually.
  • Long-Term: By 65, stepped cover costs ~$6,880 more (in total) than level cover.

Important: Premiums vary by insurer, health, and lifestyle. Vaping status, weight, or pre-existing conditions can significantly alter costs. We suggest using our life insurance calculator or LifeDirect for accurate quotes.

Stepped vs Level and Real-World Scenarios: What You Need to Know

Every family situation is different; the following scenarios illustrate how stepped and level cover compare in different situations, focusing on cost structures and premium dynamics. These are examples, not recommendations.

Scenario 1: Young Couple with Mortgage
  • Profile: Emma and Tom, both 32, have a newborn, $600,000 mortgage, and a combined income of $120,000.
  • Needs: $750,000 cover each for 20 years to clear the mortgage and support the family.
  • Structure Example: Stepped Cover
  • Details: Stepped cover starts at ~$360/year each ($30/month), compared to ~$720/year ($60/month) for level cover. Their budget is strained by mortgage and childcare costs, and they plan to reduce the mortgage within 15-20 years. Stepped premiums may rise to ~$600/year by age 52, but the total cost over 20 years (~$9,000) is lower than level cover (~$14,400).
  • Considerations: Stepped cover arguably aligns with their short-term affordability needs. They could reduce or cancel cover if they pay off the mortgage early.

Scenario 2: Mid-Career Professional with Dependents
  • Profile: Mike, 45, married, has two teens, earns $180,000 as the sole income, and wants $1,000,000 to cover until 70.
  • Needs: Protect his family and cover education costs if he passes away.
  • Structure Example: Level Cover
  • Details: Level cover costs ~$1,500/year, fixed until 70, while stepped cover starts at ~$800/year but could reach ~$4,000/year by 70. Over 25 years, level cover totals ~$37,500, compared to ~$47,500 for stepped (assuming 4% increases). Inflation-linked options (e.g., a 2% annual cover increase) keep level cover's value stable.
  • Considerations: Level cover's fixed cost arguably suits Mike's stable income and long-term planning.

Scenario 3: Couple in Their 50s with Teenagers and Mortgage
  • Profile: Sarah and James, both 52, have two teenagers, a $800,000 mortgage, and a combined income of $260,000.
  • Needs: $1,000,000 cover each for 10 years to cover the mortgage and support the family.
  • Structure Example: Stepped Cover
  • Details: Stepped cover starts at ~$900/year each ($75/month), compared to ~$1,600/year ($133/month) for level cover. Mortgage payments and education costs stretch their budget, and they aim to reduce the mortgage within 10 years. Stepped premiums may rise to ~$1,200/year by age 62, with a total cost over 10 years (~$10,500) lower than level cover (~$16,000).
  • Considerations: Stepped cover arguably aligns with their shorter-term affordability needs, as the 10-year duration limits premium increases.

Scenario 4: Empty-Nest Couple in Their 60s with a mortgage
  • Profile: Linda and Mark, both 60, are empty nesters with a $500,000 mortgage and a combined income of $160,000.
  • Needs: $750,000 cover each for 10 years to clear the mortgage and cover living expenses.
  • Structure Example: Stepped Cover
  • Details: Stepped cover costs ~$1,200/year each ($100/month), compared to ~$2,000/year ($167/month) for level cover. With dual incomes, they prioritise affordability while paying down the mortgage over 10 years. Stepped premiums may rise to ~$1,600/year by age 70, with a total cost over 10 years (~$14,000) lower than level cover (~$20,000).
  • Considerations: Stepped cover arguably suits their need for lower initial costs over a shorter term.​

Premium Calculations, Adjustments and Flexibility - What You Need to Know:

​Choosing between Stepped or Level cover is a process that needs careful consideration - there are a lot of factors beyond the monthly costs. We explain these below:

As a recap:
  • Stepped Cover: Premiums are based on a base rate plus an age-related loading, recalculated annually. Insurers use actuarial tables factoring in age, gender, health, and lifestyle.
  • Level Cover: Premiums are set using the policyholder's age and health at the start, averaged over the term. A 40-year-old's $800/year premium reflects the insurer's estimate of risk until 65, adjusted for vaping or health conditions.

Policies specifics:
  • Increasing/Decreasing Cover: Stepped cover adjusts premiums based on current age and health, making increases costlier over time. Level cover may allow increases within the term (e.g., for inflation) without changing the premium rate, but decreases may not lower premiums significantly.
  • Cancellation: Both types allow cancellation without penalties, but no refunds are given for paid premiums. Restarting cover later requires new underwriting, which could be costlier if vaping or health issues arise.
  • Switching Structures: Converting from stepped to level (or vice versa) typically requires new underwriting. Some insurers allow switching within 5 years without medical reassessment, but terms vary. Before signing up for any life insurance policy, make sure you understand the switching options.​

Frequently Asked Questions

Buying Life insurance will start many conversations about what's right for you, and deciding between Stepped and Level is important to get right to protect your long-term interests. Our FAQs below are published to give guidance, but they are not financial or insurance advice and are general in nature.

How does vaping affect stepped and level cover premiums?

Vaping is treated similarly to smoking by most insurers (e.g., AIA, Partners Life, Fidelity Life, Chubb, Asteron Life), increasing premiums by 30%-100% due to associated health risks based on policy costs generated from LifeDirect. For a 35-year-old with $500,000 cover:
  • Stepped Cover: Premiums might rise from $400/year (non-vaper) to $600-$800/year. Annual increases could be higher if vaping continues, as insurers reassess risk yearly.
  • Level Cover: Premiums might increase from $800/year to $1,100-$1,260/year, but the rate is fixed for the term (e.g., until age 65), unaffected by ongoing vaping.
  • Depending on the insurer, ceasing vaping for 12-24 months may reduce premiums. Always disclose vaping status during underwriting to avoid claim denials.

What happens to level cover premiums after the term ends?

Level cover premiums are fixed until the end of the term (e.g., 10 years or age 65, 70, or 80). After this, most policies switch to stepped premiums, which are recalculated based on the policyholder's current age, health, and lifestyle. For example, a $800/year level premium for a 35-year-old until age 65 might jump to $2,000-$3,000/year as stepped cover at 65, especially if vaping or health issues are present.

​Some insurers allow renewal or conversion to a new level term, but this requires new underwriting, which could increase costs if health has declined.

Can premiums change for reasons other than age or vaping?

Yes, premiums for both stepped and level cover may change due to:
  • Cover Increases: Adding more cover (e.g., $500,000 to $750,000) raises premiums. Stepped cover adjusts based on current age; level cover may maintain the same rate for increases within the term.
  • Inflation Adjustments: Many policies (such as AIA) offer optional inflation-linked increases (e.g., 2% annual cover increase). For stepped cover, this adds to age-based hikes; for level cover, it increases cover without altering the premium structure.​​

How do health conditions impact stepped vs. level cover costs?

Pre-existing conditions (e.g., diabetes, high blood pressure) can increase premiums by 20%-100%, depending on severity and insurer underwriting. For example:
  • Stepped Cover: A 40-year-old with diabetes might pay $600/year for $500,000 cover instead of $400/year. Annual increases may be steeper if conditions worsen, as risk is reassessed yearly.
  • Level Cover: The same person might pay $1,200/year, but the premium is locked in for the term, so new conditions or vaping won't raise costs until the term ends.
  • Insurers like Pinnacle Life may offer lower rates for healthy lifestyles - you will need to disclose all health details to ensure claims are valid.​​​​

How do inflation adjustments work with stepped and level cover?

Inflation-linked options offered by insurers (for example, AIA outlines their policy here) increase cover annually (e.g., 2%-5%) to maintain its real value. How each insurer approaches inflation varies:
  • Stepped Cover: Inflation adjustments raise premiums alongside age-based increases, accelerating cost growth. For example, a $500,000 policy at $400/year might increase to $600,000 cover and $700/year after 10 years, including age and inflation adjustments.
  • Level Cover: Inflation increases cover without changing the premium structure, keeping costs stable. For example, a $800/year premium with the same fixed rate might cover $600,000 after 10 years.
  • This makes level cover more predictable for long-term inflation adjustments, while stepped cover's costs rise faster.

What happens if I want to switch insurers with stepped or level cover?

Switching insurers requires a new policy and full underwriting, which reassesses age, health, and lifestyle (e.g., vaping). For example:
  • Stepped Cover: A 50-year-old switching from AIA to Partners Life might face higher premiums if vaping or new conditions are reported, as the new policy starts at current age-based rates.
  • Level Cover: The same person might lock in a new level premium, but costs could rise if health has declined since the original policy.
  • Some insurers offer portability clauses for similar cover within 3-5 years, but terms vary. We suggest obtaining and comparing quotes using LifeDirect to assess cost differences before making any decision to switch.

How do stepped and level cover handle lifestyle changes, like quitting smoking or vaping?

Lifestyle changes, such as quitting smoking or vaping, can affect premiums, but the process differs:
  • Stepped Cover: Quitting vaping for 12-24 months may lower premiums at the next annual review, as insurers reassess risk yearly. For example, a $600/year premium might drop to $450/year after 12 months of non-vaping.
  • Level Cover: Premiums are fixed for the term, so quitting vaping doesn't reduce costs until renewal or a new policy. However, a new level policy could have lower rates post-cessation.
  • Insurers require proof of cessation (e.g., medical records or declarations). You'll need to notify your insurer of lifestyle changes to ensure accurate underwriting and valid claims.

Which life insurers offer level cover?

Major insurers offers level life cover include, but are not limited to, AIA, Partners Life, Fidelity Life, Chubb and Asteron Life. For detailed comparisons, use our life insurance calculator or contact LifeDirect.

Our Conclusion and Next Steps

  • Stepped and level cover offer distinct approaches to life insurance premiums.
  • Stepped cover provides lower initial costs, arguably more suitable for shorter-term needs such as when a mortgage is owing, but rising premiums can add up over decades.
  • Level cover starts pricier but ensures cost stability, often saving money for long-term policies. Factors like vaping, health, and coverage duration significantly influence costs and suitability.
​
Next Steps and Action Plan: Follow these steps to select the best life insurance premium structure (stepped or level) for your needs:
  1. Assess Your Needs and Budget: Determine your coverage amount (e.g., $500,000 to clear a mortgage) and duration (e.g., 10 years or until age 65, 70 or older) based on debts, dependents, and income. Use our Life Insurance Calculator to estimate costs for stepped vs level cover.
  2. Compare Quotes with LifeDirect: Get personalised quotes from insurers like AIA, Partners Life, Fidelity Life, and Chubb using LifeDirect’s comparison tool. You can toggle between Stepped and Level pricing and evaluate short vs long-term costs.
  3. Check Policy Terms: Confirm term lengths, inflation adjustments, and switching options (e.g., stepped to level) with insurers. Ensure you disclose vaping, smoking and/or health details to avoid claim denials.
  4. Choose and Monitor: You may select stepped cover for short-term affordability or level cover for long-term savings; whatever your needs, you can purchase using LifeDirect or directly with the chosen insurer. Most New Zealanders will reassess their life insurance needs and costs every 2–3 years or after lifestyle changes (e.g., quitting vaping, having another child, increasing the size of a mortgage, etc) to adjust coverage accordingly.

Important: Because of the variability in pricing, we suggest comparing quotes from insurers like AIA, Partners Life, Chubb and Fidelity Life and reviewing policy terms. We believe an easy way to get started is using a policy price comparison tool such as LifeDirect which lets you input individual circumstances.

Disclaimer: This guide is for general information only and does not constitute financial advice. Premiums and policy terms vary by insurer, health, lifestyle, and other factors. For further information, our Life Insurance comparison explains more, and you can also contact LifeDirect.
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