Life InsuranceIncome Protection

Insurance commissions in Australia: What you are really paying for

Skye Wealth·11 Mar 2026
Insurance commissions in Australia: What you are really paying for

Insurance commissions are one of the most misunderstood elements of life insurance advice in Australia. The very word, ‘commission’ can make people feel uneasy. It can make people think of hidden motives or additional costs, disguised in your premiums.

The reality is far more structured.

Insurance commissions in Australia operate within a layered regulatory framework that includes prudential supervision, legislative control and specific commission caps introduced under reform.

Understanding that structure changes the conversation.

Before discussing insurance commissions, it is important to understand the regulatory environment surrounding life insurance itself.

Life insurers are supervised by the Australian Prudential Regulation Authority.

The Australian Prudential Regulation Authority supervises life insurers to ensure they remain financially sound and able to meet their obligations to policyholders (APRA).

This means insurers operate under strict capital requirements and prudential standards. Distribution costs, claims management and product pricing exist within a heavily regulated system.

Insurance commissions do not operate in isolation. They sit within this broader prudential framework.

Financial advisers are regulated under the Corporations Act 2001.

Part 7.7A of the Act contains provisions that prohibit conflicted remuneration. Section 963 defines conflicted remuneration as a benefit that could reasonably be expected to influence the advice given to a client.

Under these provisions, advisers cannot receive benefits that create conflicts of interest in relation to financial product advice (Australian Government).

This means advisers cannot receive:

  • Volume-based bonuses
  • Higher commission rates for recommending one insurer over another
  • Incentives tied to product selection

Insurance commissions must operate within these legal constraints.

Insurance commissions were restructured under the Life Insurance Framework reforms.

ASIC’s Regulatory Guide 275 explains that the reforms introduced caps on upfront and ongoing commissions, along with clawback arrangements, to reduce incentives for inappropriate policy replacement (ASIC RG 275).

These reforms were designed to reduce structural conflicts and improve long-term consumer outcomes.

This is not an industry preference. It is a regulatory requirement.

Insurance commissions in Australia have two components:

  • Upfront commission capped at 66 percent of the first year’s premium
  • Ongoing commission capped at 22 percent of the premium each year the policy remains in force

These caps apply uniformly across insurers.

Commissions must be disclosed to clients in both percentage and dollar terms.

They cannot increase based on production volume. They cannot be adjusted upward to favour one insurer over another. They are constrained by law and regulatory guidance.

Insurance commissions today look very different to how they operated before reform.

Under the Life Insurance Framework reforms, clawback rules apply to upfront commissions if a policy is cancelled or reduced within the first two years.

Put simply, if a policy is set up and then changed shortly after, the insurer can take back some or all of the upfront commission paid to the adviser.

The structure works like this:

  • 100 percent of the upfront commission is clawed back if the policy is cancelled within the first 12 months
  • 60 percent is clawed back if it is cancelled between months 13 and 24
  • If cover is reduced within the first two years, a proportional amount of the upfront commission is clawed back
  • After 24 months, no clawback applies

These rules were introduced under the Life Insurance Framework reforms to reduce incentives for inappropriate short-term policy replacement. ASIC Regulatory Guide 275 outlines how these arrangements operate in practice.

In practical terms, this means advisers do not benefit from setting up cover that is later reduced or cancelled soon after commencement.

Insurance advice is not transactional.

It involves:

  • Researching multiple insurers
  • Comparing definitions and exclusions
  • Structuring cover levels
  • Managing underwriting and medical disclosures
  • Preparing compliant advice documentation
  • Providing long-term servicing
  • Supporting clients through claims

The commission model distributes the cost of advice over the life of the policy rather than requiring large annual invoices.

Without insurance commissions, advisers must recover costs through:

  • Higher upfront advice fees
  • Ongoing service fees
  • Potential claim-related charges

The cost does not disappear. It changes structure.

A hybrid model includes both:

  • An upfront advice fee
  • Insurance commissions

The initial fee covers part of the upfront work, including research, structuring, compliance and documentation.

The commission supports long-term responsibility and servicing.

Separating the two reduces distortion:

  • The fee covers completed work
  • The commission supports future service obligations

Without an upfront fee, complex advice cases that do not proceed can create commercial pressure. Without commissions, ongoing servicing must be charged directly each year.

One common belief about insurance commissions is that removing them automatically reduces premiums.

In some cases, identical policy structures can be priced the same whether purchased directly or through an adviser.

Life insurers must fund:

  • Marketing
  • Claims infrastructure
  • Distribution
  • Compliance
  • Administration

All within prudential supervision by APRA (APRA).

Removing adviser commissions does not remove insurer expenses. It changes how distribution is funded.

The difference between direct and advised distribution is often not just price. It is the inclusion of structured advice and ongoing support.

Turning off insurance commissions reduces the premium.

However, a fee for service adviser must charge direct fees to recover costs.

Example comparison over 10 years:

Commission model:

  • Total premiums: $25,178
  • Adviser remuneration including fee: $6,184

No commission model:

  • Lower premiums
  • Upfront fee approximately $3,600
  • Ongoing annual fee approximately $385

Total over 10 years: approximately $26,258

With one review at year five: approximately $29,531

The premium saving exists. But once fees are included, total cost can equal or exceed the commission model.

If claim assistance is charged separately, total costs may increase further.

Insurance commissions are one funding mechanism. Removing them does not remove adviser cost.

Every professional remuneration structure contains potential conflicts.

  • Commission model links remuneration to premiums
  • Hourly billing links remuneration to time
  • Percentage claim models link remuneration to payout size

The question is not whether conflict exists. It is whether it is regulated.

Under Part 7.7A of the Corporations Act 2001, conflicted remuneration is prohibited (Australian Government). Under RG 275, commission caps and clawback provisions were introduced specifically to reduce structural incentives (ASIC).

Insurance commissions in Australia are:

  • Legislated
  • Capped
  • Disclosed
  • Subject to best interest duty

That framework does not eliminate scrutiny. It creates guardrails.

When assessing insurance commissions, consider:

  • Total cost over 10 to 20 years
  • What servicing is included
  • Whether claims support is covered
  • Transparency of disclosure
  • Alignment with your needs

Insurance commissions are not automatically good or bad. They are a regulated funding structure within Australia’s financial advice system.

Clarity comes from understanding structure, not reacting to terminology.

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