Your life insurance policy could cost more over time
When it comes to your premium, your insurer may offer a stepped or level premium. A stepped premium (the most common type of premium) is one that increases each year as you age.
The main reason it increases is due to the added risk to insure you as you get older. A level premium is one that doesn’t increase each year but is a flat rate premium for the life of your policy, unless you change your cover or the rates for the product are amended. Check with your insurer what type of premiums they offer and weigh up the pros and cons of each type before deciding which one suits you.
A stepped premium is also likely to increase each year as many policies take into account the increase in the cost of living. Put simply, due to inflation, a $500,000 cover amount today will be worth less than $500,000 cover in 5 or 10 years. Because of this, many policies automatically increase your cover amount by a certain percentage (usually between 3-5%) each year when your policy renews, so that if you ever need to make a claim, your cover amount is in line with the current cost of living. This increase in cover amount will in turn also increase your premium. You may be able to choose to decline this increase in cover though, but you’ll need to discuss this with your insurer.