Life Insurer TAL wants reforms over Level Premiums

Life Insurer TAL (formerly Tower Australia) has called for regulatory changes to make level premiums more attractive to customers.

While TAL CEO Jim Minto described Level Premiums as comparable to fixing mortgage rates – which Australians are quite familiar with – consumers are still favouring the short term affordability of stepped premiums over the long term affordability of level premiums.

“Australians are familiar with fixing their mortgage rates and locking in utility rates to manage costs, but are more reluctant to fix their life insurance premium, which, in the long run, usually end up cheaper overall,” Mr Minto said.

“Although they (level premiums) initially start higher than stepped premiums, they can provide households price certainty for the future because families don’t have t find extra funds each year.”

An analysis of stepped vs level premiums by life insurance comparison website ComparingExpert.com.au highlights the increased costs of stepped premiums in the long run:

Age 35
Gender Male
Cover Amount $1 million
Premium Style Level
Annual Premium $925.32
Cumulative Premium
to age 80
$27,759.60
Age 35
Gender Male
Cover Amount $1 million
Premium Style Stepped
Annual Premium $567.96
Cumulative Premium
to age 80
$707,212.44

Level Premiums

Age Annual Premium
35 $925.32
40 $925.32
50 $925.32
60 $925.32

Stepped Premiums

Age Annual Premium
35 $567.96
40 $741.36
50 $1848.12
60 $7052.16

level-vs-stepped-premium

Please note that while the premiums used are based on real life examples, they are examples only and may not reflect actual cover available. Also, while premiums may not increase due to a change in your age each year, they may increase due to other reasons such as CPI increases, change in base policy fee or stamp duty.

Please contact one of our advisers to get a more accurate quote

Some of the changes TAL is calling for included the requirement for minimum termination value on Long Term Risk business be optional for policyholders individually, on an ‘opt out’ basis, in order that the provision of premium risk products be more affordable for a greater number of Australians.

Another recommendation was that for people on benefits or fixed incomes including pensions that level premiums only be available.

CEO of ComparingExpert.com.au, Russell Cain, said while Stepped Premiums may be more affordable for those only wanting short term cover (7-10 years), the high cost of them long term was causing people to cancel their policies.

“We often see people in their 40’s and 50’s cancelling policies when their stepped premium simply becomes too unaffordable or switching to policies which may be cheaper but actually offer an inferior product,” Mr Cain said.

“Recent research by TAL has shown that it is at this age (40-50) that people are most likely to make a claim and need those policies in place so there is potentially a large number of people who are being put in a poor financial position, while they are going through a potentially difficult time in their life,”

Mr Cain suggested people think hard about what premium structure they want before simply settling on the cheaper option and talk to their adviser about how they can make their cover more affordable.

“Cheaper may not always be better – our analysis shows that you can pay up to 25 times more for stepped premiums over the life of your policy compared with Level Premiums,” Mr Cain said.

“To make your cover more affordable and be able to opt for level premiums, you may want to take out a combined policy, hold all or part of your cover in super, reduce your level of cover or remove CPI increases”.