Why Level Premiums No Longer Behave the Way They Used To

The new reality of life insurance pricing in Australia (2025)

For decades, Australians were told a simple rule:

Choose level premiums if you want to save money long-term.Choose stepped premiums if you need a cheaper option upfront.

But in recent years, that rule has been turned upside down.

Level premiums — once seen as the “sensible long-term investment” — are now behaving unpredictably, with many policyholders experiencing multiple large increases, sometimes 30%–60% in a single year.

This article explains why level premiums no longer behave the way they used to, what changed, and how Australians can protect themselves when choosing life insurance in 2025 and beyond.

1. Level Premiums Were Never Truly “Fixed” — They Were Misunderstood

Consumers often believed level premiums meant:

• “My premiums will stay the same forever.”

But in reality, level premiums only ever meant:

• “Your premiums don’t increase due to age.”

They can still increase due to:

• insurer rate reviews

• reinsurance repricing

• CPI/indexation

• changes to product features

• business profitability adjustments

Historically, these increases were small and infrequent. Today, they are large and regular.

2. Insurer Rate Hikes Have Changed Everything

In the last 5–10 years, nearly every major insurer — AIA, TAL, Zurich, MLC, OnePath, ClearView, MetLife — has undergone significant portfolio repricing.

Why?

✔️ Higher claim volumes

Trauma, TPD and income protection claims have risen far more than expected.

✔️ Mental health claims exploding

This has become one of the highest and fastest-rising areas of claim cost.

✔️ APRA Income Protection Reforms (March 2020)

Insurers had to:

• redesign products

• increase reserves

• reduce long-term claim exposure

The result? A wave of repricing across all retail books.

✔️ Reinsurance costs increased

Reinsurers (who take most of the risk) raised rates, affecting all customers.

These forces hit level premiums hardest, because:

• they were underpriced for years

• insurers used level premiums to attract stable long-term customers

• repricing corrections became inevitable

3. Level Premiums Are Now Catching Up to Reality

In many cases, insurers discovered that level premiums were:

• priced too low

• not sustainable long-term

• creating large losses over time

• attracting older, higher-claim clients (selection risk)

To correct this, insurers repriced entire segments by:

• 15%

• 25%

• sometimes even 60% or more

This means many customers paying level premiums have seen increases far greater than they ever expected — and often far higher than stepped premium increases.

4. For Many Policyholders, Level Premiums Are No Longer Cheaper

The traditional modelling looked like this:

• Stepped premiums start low, rise every year

• Level premiums start high, but eventually become cheaper

• Over 15–20 years, level premiums save money

Today’s reality?

Level premiums may no longer be cheaper long-term

Due to the compounding effect of repricing, many policyholders are discovering:

• Their level premiums have surpassed their stepped equivalent

• They would have been better off staying on stepped

• The expected “cross-over point” never happened

Level premiums can now double within a few years

Particularly for older IP products where insurers are still correcting pricing issues.

The old promise of long-term price stability has broken down.

5. Hybrid Premiums Have Become More Attractive

Many modern policies now offer a hybrid or blended premium structure:

• Part stepped

• Part level

This allows:

• lower upfront costs than full level

• more stability than full stepped

• reduced exposure to massive repricing shocks

In 2025, hybrids are becoming one of the most balanced and sustainable premium structures.

6. Why Level Premiums No Longer Behave: The Real Cause

The real problem is not the premium structure itself — it's the insurance industry reality:

✔️ Claim volumes increased

✔️ Mental health claims exploded

✔️ Income protection became unprofitable

✔️ APRA forced structural changes

✔️ Reinsurers raised prices

✔️ Insurers corrected years of underpricing

All of this means:

Level premiums today behave nothing like level premiums from 10–20 years ago.

7. What Consumers Should Do in 2025

Here are the most important rules when choosing a premium structure today:

✔️ 1. Don’t assume level premiums will save money

Run long-term projections under different repricing scenarios.

✔️ 2. Review your premium structure every 3–5 years

Don’t “set and forget”.

✔️ 3. Consider hybrid premiums

They often provide the best value in volatile pricing markets.

✔️ 4. Choose insurers with a stable repricing history

Some insurers increase premiums far more aggressively than others.

✔️ 5. Don’t cancel old policies without advice

They may have better definitions or medical underwriting you can’t get back.

8. Summary: Level Premiums Today Are Unpredictable

Old rule:Level premiums = fixed, stable, cheaper long-term.

New reality:

• Level premiums are rising fast

• Repricing is frequent and unpredictable

• Long-term savings are no longer guaranteed

• Hybrid or stepped may be better for many Australians

• You must review your policy regularly

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Level premiums still can be valuable — but only when chosen with full awareness of the new market conditions.

Stepped Vs Level Premiums