The Cheap Option Warning

SPEAKER_01 0:00

Your bank told you to get the cheap option. Now, here's what they didn't tell you. Hello, Rebecca. Hello. We're going to talk about insurances. And we're going to talk about level premiums versus stepped. What are

What Stepped Premiums Really Mean

SPEAKER_01 0:15

even those words?

SPEAKER_00 0:16

Let's figure this out. So we'll start with stepped because that is the one that people are likely to have. Why would they go for stepped? It's cheaper up front. So it's a cheaper policy. Um because the younger you are, the cheaper the premium.

SPEAKER_01 0:31

Mm-hmm. And then by the time you get 50, it gets very expensive. The opposite. And then you cancel it. Pretty much.

SPEAKER_00 0:40

And usually that's around when you need it most, especially with a trauma product or something like that. The ages where you're starting to see a lot more health issues.

SPEAKER_01 0:50

Mmm.

SPEAKER_00 0:51

So the step to especially if if we look at like new home buyers in particular, and if they've gone to a bank and the bank has given them some insurance options, people, I mean, they're taking on this massive debt of a mortgage, right? They're even if they've been renting before, it's a completely different ball game with having knowing you've got to pay your mortgage, you've got rates, you've got all those other things now. So people are very focused on paying as little as possible for things. So a stepped premium is a way for an easy way to sell some life insurance, we'll say. Yes. Because it is a lot cheaper for younger people.

SPEAKER_01 1:31

Yeah.

SPEAKER_00 1:31

But like you said, you know, down the track with stepped cover, the premium goes up every year for age. It also goes up for consumer price index if you're you have that type of policy. So the premium goes up every year. So then by the time you hit, like you said, 50 is an example, you're paying multiple times what you were paying before. If you lock it in, level it at the age you took it out, say we'll say 28, 30, something like that. It will cost more

How Level Premiums Lock In Cost

SPEAKER_00 2:04

up front, but age 50, you're still paying the same premium you would have been paying at age 28 to 30.

SPEAKER_01 2:11

Wow. That's a huge difference. That's thousands of dollars difference.

SPEAKER_00 2:16

And especially look, down the track, you know, you might not have your mortgage anymore, whatever it is, but you're still gonna need if you don't have a lot of savings, you're still gonna need funeral protection. You're still gonna need those sort of things. You have people you want to leave money to, whatever it is. There's still a reason to have life cover later in life. So having it level, insurers offer a range of level premiums, level to 80, level to 100. The level to 100, once you hit 100, it actually keeps going, but you don't have to pay a premium anymore. Oh, how many people hit 100? They release you from paying it 100. Exactly. But it's state like imagine locking in a policy at 20 and paying, I don't know, ten, fifteen dollars a fortnight and still paying that at age 80.

SPEAKER_01 2:59

Oh, God. I mean, by the time people are 50 and they if they want to take insurance out, that costs them at least, I don't know, 60 bucks a week. Yeah, exactly. Something ridiculous.

SPEAKER_00 3:09

Yeah. I recently did a quote for a family for some level cover. They've got stepped cover, and that's fine for now because that's the one they're gonna start reducing as their mortgage goes down. But we did some level cover

Future Proofing Cover For Kids

SPEAKER_00 3:20

for future proofing, so it's the husband and wife and their 17-year-old daughter. So their 17-year-old daughter is getting life and trauma cover, level two. I think they went with 80, and it's going to cost about $15 a fortnight, and it's gonna stay at $15 a fortnight. Yeah, like that's insane. Like, even 10 years down the track, she would be paying double that for the amount of cover.

SPEAKER_01 3:49

I was just thinking, oh my own kids. I'm like, damn, I should like sign them up now. As soon as they're 16, you can. Okay, as soon as they're 16. Good to know. So for those that are listening out there and you're just thinking, what is that? What is level? I don't understand. You know, listen to this episode a few times because this is important. This is gonna save you thousands of dollars down the track. Because what we're seeing right now is people are calling us to cancel insurances because they're worried that the prices are going up, you know, your rates are going up, your house insurance going up. Everything is going up, everything is going up, but you're canceling the thing that you probably will need the most. Absolutely.

SPEAKER_00 4:24

Yeah. And the big thing there is like as I said before, if you've got the stepped cover, you are reducing that down as you know, as you get rid of debt.

SPEAKER_01 4:34

Yeah.

SPEAKER_00 4:34

Having that life level cover, even if it's you can do a split, right? You come to us, we do part of it level, part of it stepped, you reduce a step down. As you get rid of your debt, you have your level cover. So even though the level is more expensive up

Don’t Cancel Cover Under Pressure

SPEAKER_00 4:46

front, as you're reducing your stepped cover, it's you're making up even extra money there down the track because you're reducing down the one that's been going up in price, but you're still locked in even with the slightly more expensive cover earlier on.

SPEAKER_01 4:57

It's almost like if I put my mortgage lens on it for a moment, it's almost like fixing your mortgage for a period of time and you know exactly how much you're gonna pay. Yes, it's a gamble, you may take a five-year

Fixing Your Price Like A Mortgage

SPEAKER_01 5:08

rate at five and a half percent versus you could have fixed at four percent for six months. But the five year is gonna pay off because if suddenly we get the rate like we did last year when there were six and a half, seven percent, you're winning. So same as insurance. You're sort of fixing the price until a moment comes in life when the the term of it expires.

SPEAKER_00 5:29

So and even being able to budget it, you know that that is locked in, you know that is how much it's going to cost, it's not going to change, no matter what. You know that that's all you're ever gonna pay.

SPEAKER_01 5:39

Yeah, exactly. And this is again, you know, I can harp on about it over and over again where the power of insurance advisors comes. When we sit down and review those covers with you, we

Why An Insurance Adviser Matters

SPEAKER_01 5:50

can suggest all those things instead of you trying to work out on your own demystify. Like we're trying, you know, we don't do someone else's job, right? We don't we don't go and pretend to be a mechanic or a plumber or a builder, right? Same for you. Why do you want to pretend to be an insurance advisor and do your own insurance? Unless you are an insurance advisor and you're listening to this. Sure. Do your own insurance. But in the grand scheme of things, you know what I mean. Like, why be someone you are not? This is why you have all these different professions and professionals to trust. Absolutely. Beautiful. Thank you so much, Rebecca. Lovely having you again. Thank you.