Stepped premiums start lower but increase each year with your age. Level premiums start higher but stay relatively flat over time. The SMSF Master Insurance Plan uses stepped premiums — here’s why that structure works for most SMSF members.
Stepped premiums start low and increase each year as you get older. The premium you pay reflects your current age and your current risk. Level premiums start higher but are designed to stay relatively flat over time — they’re calculated to even out the cost across the policy’s life, so you pay more in the early years and less (relatively) in the later years.
Both structures cover you for the same benefit. The difference is how the premium curve looks over time.
How stepped premiums work
With stepped premiums, the insurer recalculates your premium each year based on your age. Because the statistical risk of a claim increases with age, the premium increases too. In your 30s and 40s, the year-on-year increases are modest. From your 50s onwards, they start climbing more noticeably. By the time you’re in your 60s and 70s (if you’re still holding cover), the annual increases can be steep.
The advantage is that you pay only what your current risk warrants. You’re not pre-funding the cost of older-age cover. If you cancel or reduce cover in your 40s, you’ve only paid premiums priced for your 30s and 40s — you haven’t paid in advance for cover you’re no longer using.
How level premiums work
Level premiums are calculated assuming you’ll hold the cover for a long time. The insurer averages out the expected cost of cover from now until you cancel or reach the cover expiry age, and charges you a flat (or near-flat) premium across that period. The early years cost more than they would under stepped; the later years cost less.
The advantage is predictability and lower total cost over the long term — if you hold the cover for many years. The disadvantage is the higher upfront cost, and the fact that if you cancel or reduce cover before the level structure has “caught up,” you’ve effectively overpaid in the early years.
What the SMSF Master Insurance Plan uses
Under the SMSF Master Insurance Plan available through SMSF Insurance, premiums are stepped. This means your premium increases each year with your age, and the rate at which it climbs follows the Plan’s group rate table.
This is a deliberate design choice for a few reasons:
- Stepped premiums start lower, making the cover more accessible for members applying for new cover
- Group rates compound the advantage — the wholesale pricing structure means even stepped premiums under the Plan are generally lower than retail equivalents
- Most SMSF members don’t hold cover for 40+ years, so the long-term “savings” of level premiums often don’t materialise in practice
- Cover types and levels change as people age — most members adjust their cover over time, which works more naturally with stepped pricing
Which structure suits which situation
Stepped premiums tend to suit:
- Members in their 30s, 40s, and 50s who want lower current-year costs
- Members who expect their cover needs to change over time (cover up after kids, down after mortgage paid off)
- Members for whom group pricing is available, since the discount usually outweighs the difference between stepped and level
Level premiums tend to suit:
- Younger members planning to hold the exact same cover for decades
- Members specifically planning for cover into their 60s and 70s where stepped premiums would become expensive
- Members with strong cash flow in the early years who want to lock in lower costs for later
The interaction with group rates
Here’s a point worth understanding. The bigger driver of premium cost in the SMSF Master Insurance Plan isn’t whether premiums are stepped or level — it’s that they’re group rather than retail. Wholesale group pricing under the Plan typically produces lower premiums than retail equivalents at any age, in either structure.
Members switching from retail life insurance into the SMSF Master Plan often find that the move from retail to group pricing more than offsets any concerns about stepped premiums. The whole premium curve shifts downward.
Long-term planning
For long-term planning, the question to ask isn’t “stepped or level” in isolation — it’s “what’s my expected need for this cover, and how does my likely premium trajectory compare?”
For most SMSF members, the answer is: hold stepped premium cover for the period where you need it most (typically while you have dependants, a mortgage, and ongoing financial obligations), then reduce or cancel cover as those obligations reduce. Under that pattern, stepped premiums almost always produce lower total cost than level premiums.
If your plan is genuinely to hold the same level of cover into your 60s and 70s — perhaps for estate planning or specific business purposes — level premiums become more attractive, and you might want to look at standalone retail options where level pricing is available.
| Get group-rate stepped premiums
The SMSF Master Insurance Plan combines stepped premium structure with wholesale group pricing — which is usually the most cost-effective combination for SMSF members. Get a quote through SMSF Insurance to see what your premiums look like. |
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