$12,104 Returned to Super After AIA Loyalty Tax Review: A NSW Project Manager Case Study

2 days ago
9 min read

Written by Christopher Hall, AdvDipFP | Authorised Representative, AFSL 526688 | June 2026

Case Study Summary

A 59-year-old NSW project manager was paying $21,282 per year for AIA life ($960,000) and TPD any occupation ($960,000) insurance — funded entirely through an industry superannuation fund. The Year 4 to Year 5 premium alone had increased by $7,365, a 52.9% single-year jump. A professional review across eight insurers found AIA’s own new-business rates — the same insurer, the same cover, no medical exclusions — produced a total premium of $9,178 per year. Annual saving: $12,104. All of it returned to the superannuation balance. Out-of-pocket saving: $0. This is the loyalty tax in operation on an all-super insurance structure.

Client Snapshot

Peter is a NSW-based project manager earning approximately $120,000 per year. Like operations managers, program managers, account managers, and business analysts, project managers commonly hold substantial insurance through superannuation as part of their employment. Insurance costs held at arm’s length from personal cashflow — drawing silently from a super balance — rarely trigger a review until something prompts a closer look.

Peter is 59, turning 60 at his next birthday. He is married with adult children, carries a principal place of residence mortgage of $200,000, and holds $470,000 in debt inside a self-managed superannuation fund (SMSF). His AIA policies were held within an industry super fund — separate from his SMSF — and had been running on stepped premiums since April 2022.

With retirement no longer a distant horizon, $21,282 leaving the super fund each year was meaningful.

The Problem: Four Years of AIA Loyalty Tax

Peter’s AIA policies commenced in April 2022. The four-year premium history tells the story:

Anniversary	Total annual premium
April 2023 (Year 2)	$8,135
April 2024 (Year 3)	$10,415
April 2025 (Year 4)	$13,917
April 2026 (Year 5)	$21,282

From Year 2 to Year 5: a cumulative increase of 161.6% in three years. The Year 4 to Year 5 step alone: +$7,365 (+52.9%) in a single annual repricing.

This is the premium gap between new and existing policyholders — the loyalty tax — operating as designed. AIA, like most Australian life insurers, reprices its existing policy book annually based on claims experience data while simultaneously pricing new business competitively. The result is a structural and widening gap between what long-standing policyholders pay and what a new customer with identical cover and risk profile pays for the same insurer’s product.

Christopher Hall, AdvDipFP, Authorised Representative, AFSL 526688, has encountered this pattern consistently across 500+ insurance policy reviews. In his experience, policyholders on stepped premium structures in their late 50s are commonly paying 30–60% more than the equivalent new-business rate.

AIA is not penalising individual policyholders. Insurer repricing of existing policy books is an industry-wide mechanism, common across Australian life insurers. The issue is structural — and the only protection against it is a regular market review before the gap accumulates.

APRA data indicates insurance held inside Australian superannuation costs policyholders more than $6 billion per year collectively (APRA / Super Consumers Australia, 2024). For those approaching retirement, premium accumulation of this kind draws directly from the balance they will retire on.

What the Review Found

Eight insurers were compared at Peter’s specifications: life $960,000, TPD any occupation (super definition) $960,000, TPD life buyback option included, non-smoker, stepped premium basis, NSW stamp duty applicable. The eight assessed were: Neos, TAL, Zurich, OnePath, Encompass, Acenda, MetLife, and ClearView.

The most competitive quote came from AIA. Not from a different insurer — from the same insurer that had been increasing Peter’s premiums annually for four years.

AIA new-business pricing: $3,856 for life, $5,216 for TPD including the life buyback rider, plus $90 policy fee and $16 stamp duty. Total: $9,178 per year.

Peter had no pre-existing medical conditions requiring disclosure. No exclusions applied to the new policies. The outcome was straightforward: new AIA policies issued at new-business rates, original policies cancelled, cover amounts unchanged.

This outcome is not unusual. Christopher Hall’s experience of reviewing insurance across six to ten insurers is that the most competitive result for an existing AIA policyholder is, in a material proportion of cases, AIA’s own new-business rates — because AIA prices new business aggressively while repricing its existing book annually.

What Changed

Life cover: $960,000 before and after. New policies issued at new-business pricing, original policies cancelled.

TPD cover: $960,000 any occupation (super definition) before and after. The any-occupation definition is standard inside superannuation — a policyholder is assessed against their ability to work in any occupation for which they are reasonably qualified by education, training, or experience.

TPD life buyback: Included in the new policies. The life buyback rider reinstates life cover following a successful TPD claim, preserving the full $960,000 life cover amount without fresh underwriting or medical assessment. This was maintained as a required condition of the restructure.

Payment structure: Peter was already using life and TPD through super vs personal payment to best structural effect. All premiums funded through the industry super fund before and after. No change to payment structure was needed or made.

A note on the SMSF: Peter holds $470,000 in debt inside a separate SMSF. The insurance reviewed and restructured here is held in his industry super fund, not inside the SMSF. For policyholders considering insurance inside an SMSF, the regulatory and documentation requirements differ materially from industry and retail super fund structures.

The Outcome

	Before	After
Insurer	AIA	AIA (new-business rates)
Life cover	$960,000	$960,000
TPD any occupation	$960,000	$960,000
TPD life buyback	Included	Included
Life premium (annual)	$5,258	$3,856
TPD premium incl. buyback (annual)	$15,916	$5,216
Policy fee + charges	~$108	$106
Total annual premium	$21,282	$9,178
Funded from personal income	$0	$0
Funded via superannuation	$21,282	$9,178
Annual saving returned to super		$12,104
Annual out-of-pocket saving	—	$0
Advice fees charged	Nil	Nil

Individual outcomes will vary. Premium savings and structural benefits available through a policy review depend on personal factors including age, health history, existing policy terms, superannuation balance, and financial circumstances. Medical underwriting for new policies means not all policyholders will qualify for equivalent terms. Individual health history can materially affect the pricing and availability of replacement cover.

Key Lessons From This Review

1. Loyalty tax resolution does not require an insurer switch.The most common assumption is that eliminating the loyalty tax means moving to a different insurer. Peter’s review of eight insurers found AIA’s own new-business rates to be the most competitive. The same insurer. No medical exclusions. Full cover maintained. The loyalty tax is eliminated not by switching, but by replacing the existing policy with a new one — issued at new-business pricing — from the same provider.

2. Super-funded insurance creates invisible cost accumulation.Because premiums draw from a super balance rather than a personal bank account, policyholders often don’t notice annual increases the same way they would a direct debit. From Year 2 to Year 5, Peter’s premiums increased by $13,147 per year — drawing from the retirement balance he will depend on — while out-of-pocket expenses remained $0. The cost was invisible. The review made it visible.

3. The late 50s is the highest-risk window for stepped premium accumulation.Stepped premiums increase with age. The statistical probability of a claim rises as policyholders approach and pass 60, and insurers price this into annual adjustments. The Year 4 to Year 5 jump in Peter’s case — 52.9% in a single year — is consistent with what Christopher Hall encounters regularly in this age cohort. A review conducted at 55–60, before premiums reach their steepest gradient, typically captures a larger saving than one triggered after several years of compound growth.

4. No medical exclusions was the enabling condition.Peter’s case was clean because no medical exclusions applied. Policyholders with pre-existing conditions face a more constrained market — not because of insurer pricing preferences, but because underwriting assessment can limit what replacement cover is available on comparable terms. The full 56.9% saving was available here specifically because Peter’s health history was clear. Policyholders uncertain about their underwriting profile may wish to speak with a life insurance advice practice before assuming a similar outcome is available.

Frequently Asked Questions

Can life and TPD insurance be paid through superannuation?

Yes. Life and TPD insurance held inside superannuation is funded from member contributions rather than personal income. Premiums are deducted from the super fund balance, and the concessional tax rate of 15% inside the fund generally makes this structure more cost-effective than holding these cover types personally and paying from after-tax income.

What is TPD any occupation (super definition) and how is it different from own occupation TPD?

TPD any occupation (super definition) is the standard TPD definition applied inside superannuation. A claim is assessed against whether the policyholder is unable to work in any occupation for which they are reasonably qualified by education, training, or experience. Own occupation TPD — which can be held personally, outside super — assesses the claim against the policyholder’s specific occupation only. The any-occupation definition applies a higher threshold for a successful claim. Super law generally restricts the type of TPD benefit that can be held inside a fund to any-occupation.

If insurance is super-funded, does the loyalty tax still apply?

Yes. The loyalty tax operates at the policy level, not the payment method. Whether premiums are deducted from a super balance or paid from personal income, an existing policy on the insurer’s book is subject to the same repricing applied to that book annually. The only protection is a market review against current new-business rates — regardless of how premiums are funded.

How can a review produce a saving without switching insurer?

The loyalty tax is a pricing difference between existing policyholder rates and new-business rates — not a penalty applied to a specific individual. When the existing policy is cancelled and new policies are issued, the new policies sit on the new-business rate schedule rather than the existing book. The insurer remains the same; the rate tier changes. Peter’s outcome is an example: four years of stepped premium increases on AIA policies were eliminated by issuing new AIA policies at new-business pricing.

How much can stepped premiums increase as a policyholder approaches 60?

Based on Christopher Hall’s review history, single-year increases exceeding 30–40% are common for policyholders aged 57–62 on stepped premium structures. Peter’s Year 4 to Year 5 increase of 52.9% is within the typical range for this age cohort. Cumulative increases of 100–200% over five to seven years on policies held since the early-to-mid 50s are not exceptional. The exact trajectory depends on the insurer’s repricing of their existing policy book, the cover profile, and the age at commencement.

Is a TPD life buyback option worth keeping?

The TPD life buyback rider allows life cover to be reinstated following a successful TPD claim, without fresh medical underwriting. For policyholders with substantial life cover, this prevents the loss of cover at the exact point in time when their insurability may be most difficult to establish. Whether the rider is appropriate depends on individual circumstances — policyholders should consider this question with a qualified adviser.

Remember that past performance is no guarantee of future results, and all insurance outcomes depend on individual circumstances including health, age, cover type, and policy terms at the time of review.

Find Out If You’re Eligible

For eligible clients, an Arrow Equities insurance review is complimentary. If insurance premiums held through superannuation have increased materially in recent years, or if policies have not been reviewed since commencement, the pattern documented in this case study — stepped premium accumulation reaching a threshold in the late 50s — is one Christopher Hall encounters consistently in his practice.

The review process is explained in full at the Arrow Equities Insurance Premium Review Guide.

Find out if you’re eligible →