Worked Examples and Checklists
How to compare life insurance and income protection quotes, step by step
A step-by-step method to compare Australian life, TPD, trauma and income protection quotes like for like, with a worked comparison and the quote tool.
To compare quotes properly, fix the cover amounts first, then make every quote use the same premium structure, waiting and benefit periods, definitions and options, and only then compare the price, ideally over ten years rather than one. A quote that is cheaper because it uses a 90-day wait instead of 30 days, stepped instead of level premiums, or an any occupation TPD test instead of own occupation is not cheaper for the same cover. Your existing super cover should be part of the comparison, not an afterthought.
This is the starting point for the worked examples section. Every figure below is illustrative.
Step 1: Find what you already have
Log in to every super account (myGov lists them) and record the death, TPD and income protection cover and weekly premium. Add any retail policies and employer cover. The cover review checklist lists where to look. Check whether any cover has been switched off under the opt-in rules.
Step 2: Work out the cover you need
- Life cover: see how much life cover do I need.
- TPD cover: see how much TPD cover do I need.
- Income protection: usually up to 70% of income; the main choices are the waiting and benefit periods, see choosing waiting and benefit periods.
- Trauma: an optional extra for treatment and recovery costs, see is trauma insurance worth it.
Subtract what you already hold to get the gap you are quoting for.
Step 3: Set the quote parameters once
Write down the parameters and give the same ones to every insurer or adviser:
| Parameter | Your choice |
|---|---|
| Sums insured | Life, TPD, trauma amounts |
| Income protection benefit | Monthly amount, usually 70% of income |
| Waiting period | 30, 60 or 90 days, or longer |
| Benefit period | 2 years, 5 years or to age 65 |
| Premium structure | Stepped or level (to which age?) |
| TPD definition | Own or any occupation |
| Held | In super, outside super or linked |
| Options | Super contribution cover, indexation, premium waiver, etc. |
| Occupation | Your actual duties and hours |
| Smoker status | As at application |
Step 4: Compare definitions, not just price
From each PDS, note:
- TPD definition and any extra conditions, such as hours worked before the claim. See TPD definitions.
- Pre-disability income for income protection, especially for self-employed and variable income.
- Offsets, such as workers' compensation, other income protection and sick leave.
- Exclusions, including standard exclusions like intentional self-harm within 13 months of cover starting for death cover.
- Trauma definitions for the conditions most relevant to your family history.
- Partial benefits for returning to work part-time.
Step 5: Compare cost over time
Ask each insurer for a premium illustration over 10 or 20 years. Add up the stepped premiums over the period you expect to keep the cover; see stepped versus level premiums. For cover in super, also calculate the effect on your retirement balance with the cost of cover in super calculator and the guide on the cost of premiums in super.
Step 6: Compare after tax
Income protection premiums held outside super are generally deductible. A $2,400 premium at a 32% rate including the Medicare levy costs $1,632 after tax. Life, TPD and trauma premiums outside super are not deductible. Use the premium tax deduction calculator. Also consider tax on payouts, see tax on life and TPD payouts.
Worked example: three income protection quotes
Illustrative: Ava, 36, a physiotherapist earning $96,000 ($8,000 a month), insures 70% of income = $5,600 a month. She has four weeks of sick leave and about $10,000 of savings. She receives three quotes:
| Quote | Waiting | Benefit period | Annual premium | After tax at 32% |
|---|---|---|---|---|
| A | 30 days | 2 years | $2,650 | $1,802 |
| B | 60 days | 2 years | $2,050 | $1,394 |
| C | 90 days | To age 65 | $2,300 | $1,564 |
Scenario 1: six months off work. Income lost = 6 × $8,000 = $48,000.
- A pays five months: 5 × $5,600 = $28,000. Income still lost = $48,000 − $28,000 = $20,000. Premium + loss = $22,650.
- B pays four months: $22,400. Still lost = $25,600. Total = $27,650.
- C pays three months: $16,800. Still lost = $31,200. Total = $33,500.
Scenario 2: five years off work. Income lost = 60 × $8,000 = $480,000.
- A pays the 2-year maximum of 24 months after its one-month wait: 24 × $5,600 = $134,400. Still lost = $480,000 − $134,400 = $345,600.
- B also pays 24 months, after a two-month wait: $134,400. Still lost = $345,600.
- C pays 57 months: 57 × $5,600 = $319,200. Still lost = $160,800.
In a short claim A wins by about $5,000 to $11,000. In a long claim C leaves Ava about $184,800 better off ($345,600 − $160,800), for a premium that is lower than A's. Long claims are rarer but far more damaging, which is why many people choose a longer benefit period and fund the waiting period from leave and savings. Run your own scenarios in the income protection quote tool.
For simplicity this example ignores tax on benefits, indexation and the stricter work test after two years under option C.
Step 7: Apply carefully, then cancel old cover last
See the underwriting checklist. Answer every question accurately, check the acceptance terms, and do not cancel existing cover until the new cover is accepted in writing.
Frequently asked questions
Should I use an adviser or buy direct?
An adviser can compare multiple insurers and help with underwriting, and is paid by commission, a fee or both. Direct cover is simpler but you choose alone, and some direct products have narrower terms. Check any adviser on the Financial Advisers Register.
How are advisers paid for life insurance?
Under the Life Insurance Framework, upfront commissions are capped at 60% of the first year's premium and ongoing commissions at 20%, with clawback if the policy lapses early. Ask what the adviser receives.
How long does a quote stay valid?
Quotes are indicative until underwriting is complete. The final premium can change after health questions.
Sources
- Moneysmart — choosing life insurance and the Financial Advisers Register
- ASIC — rules for life insurance advice and commissions
- AFCA — complaints about insurers and advisers
