Recently IRDA revised the commission structure payable to Insurance Agents, Corporate Agents, Insurance Brokers, Web Aggregators and Insurance Marketing Firm. Let us see how much your Life Insurance, Health Insurance and Vehicle Insurance Agents Commission is fixed.
These new commission rates will be effective from 1st April, 2017.
Why we must know Insurance Agents Commission?
I know after writing this post, agents fraternity will feel uncomfortable and they may abuse me also. But here my intention is neither to defend their commission structure nor I am against such hefty commission structure.
But being a customer of insurance products, I have every right to know the expenses involved in the product. Insurance Agents Commission is one of such expenses. Hence, I am disclosing this to all of you.
Why we should not share in Insurance Agents Commission?
By knowing the commission of your agents does not mean that you must ask for the share in his earnings. Remember, as per IRDA rule sharing commission or asking for a rebate is illegal. Hence, never allow those agents who are ready to share their commission with you or you must also stay away from such bad practices.
At the end of the day, it is insurance agents earning. Therefore, if you are purely satisfied with the product you are buying, then the agent has every right to earn the commission fully.
Hence, as per IRDA regulation, it is illegal share or ask for the rebate.
As per section 41 of the Insurance Act, “No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out OR renewing or continuing a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectuses or tables of the insurer”.
One more thing you must understand is that insurance contracts are long term (especially life insurance). Hence, the rapport with agents will be helpful for you. If you force for sharing his/her commission, then you may end of in losing the relation with your agent.
Also, if you ask to share his commission with you, then there is a probability of mis-selling to earn more commission. Hence, at the end, you may buy the product which you actually not required.
As in the other profession, in insurance industry also, agents acts as middlemen. Hence, they have all rights to earn the commission which is meant for them. Respect their profession like others. Because during claims, they are the one who will come forward to help you. But for how long the agent will be in the same profession or how professionally he will help is a secondary thing to decide.
You are buying the product by knowing the features and benefits. Therefore, agents also have rights to earn their commission.
However, if he is mis-selling you then you have all rights to report the same to either insurance company or to the regulator. Remember, it is not only MIS-SELLING but an MIS-BUYING from your end also. Because blindly buying products without knowing the benefits and features is nothing but MIS-BUYING. Hence, you are also equally responsible.
To whom these commission structure applicable?
These commissions structure is applicable to below intermediaries.
- Insurance Agents
- Corporate Agents
- Insurance Brokers
- Web Aggregators
- Insurance Marketing Firm
- Any other entity as may be notified by the Authority from time to time.
Corporate Agents, Insurance Brokers and Insurance Agents Commission from 1st April, 2017
In insurance, there are many categories of products. They are like Life Insurance (single and regular premium), Health Insurance, Vehicle Insurance or other than Vehicle Insurance. Hence, I try to separate one by one for your better understanding.
# Single-Premium Products
Below is the commission structure for all single premium products.
You notice that commission is high for single premium term plans than other types of insurance plans.
# Regular Premium Products
In below chart, I will show you the commission structure of Life Insurance Agents Commission for regular premium paying products of endowment type, money back, and term plans.
You notice that highest commission payable is in case of individual term insurance. This is intentionally revised to promote the pure insurance product selling.
# Health Insurance Agents Commission
In below table, I show you the Health Insurance Agents Commission structure.
You notice that for health insurance of group (provided by employer), the commission is lowest.
# General Insurance (Other than Vehicle) Agents Commission
In below table, I listed the General Insurance Agents Commission (other than the vehicle).
# Vehicle Insurance Agents Commission
In below table, I show the commission structure of agents when they sell you vehicle insurance.
How insurance agents commission affect your investment?
Now let us concentrate on Life Insurance products. They are sold usually as an investment. However, they fail to generate the returns of even 7%. Let us not go beyond other expenses which Life Insurance company have to bear. But take an example with considering the life insurance agents commission only and calculate how much returns a life insurance company have to generate to you.
Let us take an example to make you understand my point. Suppose you purchased a typical endowment plan of 15 years, yearly premium is Rs.100. Then as per you the total premium you paid during this whole 15 years is Rs.1500.
If you are expecting the return of 7% from this investment, then at the end of 15th year or at the beginning of 16th year, life insurance company must pay you back Rs.2800. Then only it is meant that your IRR (the way returns are calculated) will be 7%.
However, for life insurance company, the investable amount is less. Because they have to pay to agents (forget about other expenses). Therefore for life insurance company to generate 7% return to YOU, it has to generate more than 7%.
Hence, the front end 7% return expectation from you does not SAME to life insurance company. I tried to explain the same from below illustration.
This is just an illustration of how the expenses are very much important point to consider while investing in any product. Never ignore the expenses the product carry.
Life Insurance products also have some other expenses. If we consider all those expenses, then it’s hard for life insurance companies to generate even 7% return for you from traditional plans.
You may surprise the expenses involved in traditional plans. I already wrote a detailed post on such expenses. You may refer at “Why Endowment or Money Back Life Insurance Policies give less returns?“.
By writing this post, I am neither for or against such hefty commission or expense involved in an insurance industry to middlemen. But I want you to aware about the expenses involved and how they may affect your life insurance (if you purchased as an investment).
Remember one more thing that, online insurance comparison portals also act like agents. They also earn the commission exactly like life insurance agents (if they sell you the product by convincing you).
Hence, never rely on these online insurance comparison portals as if they are unbiased or giving you the BEST recommendation. At the end, they are also in SELLING mode than guiding you.
I wrote about how their business module is structured. Refer the post at “Beware of Insurance Comparison portals in India“.
My intention here is not to harm or degrade any profession. However, being a customer I must aware the expenses involved. Hence, sharing this information.