When you are comparing different types of life insurance policies one of the most important decisions would be to choose the most appropriate premium type to follow with your policy. It all depends on your short and long term insurance needs, which all have their most appropriate premium arrangements.
A good insurance agent will always ask you for how long you need life insurance and insurance protection. If your insurance needs are exceeding the short and medium terms, spanning over 5-10 years in the future, the most cost effective solution would be having level premiums with your life insurance policy.
However, most people in US usually hear only about stepped premiums, which are the best option for short periods of time, being cheaper in the short run – a great advantage for the agent or broker to close the deal. However, stepped premiums are recalculated on a yearly basis, taking into consideration the age and health condition of the policyholder, and the premium eventually rises with each year passing. And the older you become, the costlier it is for you to pay out your premiums. The major problem with stepped premiums is that when you reach your 50’s or 60’s the cost of insurance becomes so unbearable that you will be forced to either reduce your coverage amounts or even drop the insurance altogether. And that’s definitely not the best thing to do as you have just entered the age when life insurance is particularly needed.
When you choose to go with level premiums you can rest assured that the costs of your insurance won’t increase over time as they are not recalculated like stepped premiums. The only factor influencing the future changes in your premiums is the Consumer Price Index (CPI), which affects your income as well, and is usually between 3 and 5 percent. So the amount of money you will pay in ten years won’t be much higher than the amount you get when only looking for life insurance quotes before any purchase.
With level premiums you can rest assured that the amount of your premiums will be at the same level up to the age of 65, if the economy doesn’t experience any fundamental shifts. However, when you turn 65 years old most life insurance policies will switch to stepped premiums and you will have your rates increased each year just as if you have bought a policy with stepped premium arrangements when comparing life insurance quotes.
For example, a man who is 40 years old who purchases $100,000 of life insurance coverage with stepped premiums will spend an average of $15 per month (compare life insurance quotes initially if you want lower rates) at the first stage and when he will reach the age of 65 his gross insurance costs will account about $15,000. However, with the same amount of coverage the same man will pay $24 per month with level premiums, but his gross costs will be as low as $7,000 for the same period of time.
It may look like level premiums are more expensive initially, but in the long run they provide savings for up to twice the amount you would pay with stepped premiums. So if you are looking for a long term life insurance policy make sure that you choose level premiums in case the money question matters.