BasuNivesh

Personal Finance Blog

by

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.

  1. Insurance Agents
  2. Corporate Agents
  3. Insurance Brokers
  4. Web Aggregators
  5. Insurance Marketing Firm
  6. 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.

Life Insurance Agents Commission on 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.

Life Insurance Agents Commission on Regular Premium Products

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.

Health Insurance Agents Commission

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).

General Insurance (Other Than Vehicle) Agents Commission

# Vehicle Insurance Agents Commission

In below table, I show the commission structure of agents when they sell you vehicle insurance.

Vehicle Insurance Agents Commission

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.

Life Insurance Agents Commisison impact on returns

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.

Category: Tag:

About Basavaraj Tonagatti

Basavaraj Tonagatti is the man behind this blog. He is SEBI Registered Investment Adviser who is practicing Fee-Only Financial Planning Process and also an Independent Certified Financial Planner (CFP), engaged in blogging since 7 years. BasuNivesh blog is ranked as one among India's Top 10 Personal Finance Blog. He is not associated with any Financial product/service provider. The purpose of this blog is to "Spread personal finance awareness and make them to take informed financial decisions." Please note that the views given in this Blog/Comments Section/Forum are clarifications meant for reference and guidance of the readers to explore further on the topics/queries raised and take informed decisions. These should not be construed as investment advice or legal opinion."

Reader Interactions

Comments

  3. Hare Krishna

    Good info. Thanks. Yes there is nothing wrong in providing such information. People should know what they are paying for. Also, it is not good to ask for commission share. At the same time agents should not act as if they are simply doing a favor. Right knowledge keeps things in the right perspective. Hare Krishna

    Reply

  6. Biswajit Kumar Khatua

    Sir Good after noon is a agent commission and Insurance Marketing Firm Commission is same for Non Life and Health Policies

    Reply

  7. Hari J. Nair

    Sir, I had recently passed national insurance Academy exam direct insurance broker – life & general. Can u explain what is the procedure to empanel with insurance companies directly.

    Reply

  10. Check. Achuta Ramaiah

    Hello Sir, If I want to start insurance agency for only cancer risk or only heart and cancer risk, which company is best and how much commission % I get. Thank you.

    Reply

  11. santhi

    please tell me calculate agent commission amount which one of these?
    total liability premium or total own damage premium

    Reply

  13. Sachin

    Planning to take agency of Bharti Axa … what commission am I going to get ..? According to the blog I will get 35% for 12 year plan but the company representative told me 25% and according to blog 7.5% on premium but representative has told me 5% .

    Reply

  14. Ajay

    Sir,
    I am under training for tata aig as channel sales manager in health.
    I want to how much commisn would i get as CSM,per policy?
    And also wants to know, ia surveyor or claim officer is better option to move for??
    Or is there any other growth opportunity than going for written exam of surveyor or claim officer?
    Please guide me in this regard

    Reply

  17. Santosh

    Dear sar
    How can we start lic corporate agency and how much capital required for it and commission for 15years term police
    Please answer me
    Thanking you
    With best

    Reply

  18. Girish Amarapur

    Dear sir,

    Thanks for your kind information.I have a truck and I had renewed the insurance of the same this month I.e november 3rd. In earlier insurance the the IMT Endorsement was IMT- 23, IMT-21,IMT-28,IMT-40 and IMT-7. But in renewed insurance the IMT-23 is missing. And I did not notice that mistake made by him. Now on 19th November my truck parts, I.e All 6 tires,battery has stollen. I called to insurance agency to claim the insurance for the same. Now he is telling that IMT- 23 is not mentioned in your insurance and insurance can not be claimed .
    So please help me what I have to do . The agent has made the mistake during renewing the insurance.

    Regards ,
    Girish

    Reply

  19. Vaibhav Jain

    I want to become United India General Insurance Agent (Vehicle).
    I have nearly 200+ commercial trucks under my network so willing to give away insurance issue & renewal services.
    Whats the commission structure? & How i can become an agent?

    Reply

  20. Hitesh

    Thank you so much for the valuable information. I have a question. Is there any commission if an anybody starts “Premium Collection / Paying Center” for the convenient of the customers ? If yes, than how much ?

    Reply

  21. pankaj

    Hi Sir,
    I came across a person who wanted to start his business as independent insurance agent/broker, but using a license registered in his friends name. I hope this is illegal on part of both of them. The licensed person cannot lend his license no. to other person for his business.

    Reply

  23. sampath

    sir ,i want to become a life insurance agent ,please suggest me which company would be better for me in agent perspective?

    Reply

  24. m.s. dahiya

    Sir, I qualify IRDA Exam by Kotak Life Insurance. whether i can do business of non life insurance? if so please guide me.
    with regards,
    m.s. dahiya

    Reply

  25. KUMAR

    Dear Basu,
    I have an LIC Endowment Assurance Policy – Limited Payment (T.No. 48),started on 28/12/2002 and maturing in 2022. All Premiums Paid(Total 2 lakh rupees in 5 years) . Last transaction was on 27/06/2008 . Sum assured was 3 lakh and now online it is showing a vested bonus of Rs.198000. I wish to surrender this policy and want to take an online term plan . I am planning to invest balance amount in an equity fund.Is it a wise decision ? How much money can I expect now? OR I should continue till 2022 ? Please advise.

    Reply

  26. Sunil

    Hi,

    I had bought two insurance policy when i was 18 years old, 1 insurance premium was 200 per month and the other was 800 per quarter. Both put together i was keeping aside 500 on an average per month. at that time my salary was 1800 rs

    I had taken both the policy for 40 years and agent also told it is good to keep long term policy. i was very happy that i am saving a lot of money for my old age.

    I paid for 8 long years and finally realized that the value of money had gone so low that what ever i paid was just numbers and did not add up to my expectations.

    Had i used that money to have fun at least i would have had some sweet memories to relish.

    My point is don’t use insurance as investment. you can use it as a security that too make it for small amount not big.

    Insurance Company is also there to make money, don’t forget that.

    Reply

    • Basavaraj Tonagatti

      Sunil-But Health INSURANCE is pure INSURANCE, not an investment. Currently, the sum insured of those two policies may be meager. But do you feel the same when your salary was Rs.1,800? NO right?? Also, the biggest mistake people do is, they buy insurance and forget to enhance. Insurance buying is not one time process. But you must enhance the cover at least once in 5 years (whether it is Life, Health or other insurance covers).

      Reply

  27. Devender kapoor

    Sir kindly clear me about the commision paid in motor insurance because i m confused about insentive and commission paid because if commission rate will change then we agent will cant survive in insurance sector its too less because od premium is too less then tp premium

    Reply

  28. Ral

    Dear Basavaraj,

    Its unfortunate that you being such highly educated in Financial Services and holding a negative motion against Financial Intermediary ‘s role, let me make it very clear to you that Insurance Companies charge the same premium irrespective you come through a broker/agent or directly buy from them.

    I have been in this industry for more than 8 years and i must say customers are much better off if they have brought policy through and agent/broker.

    Reply

    • Basavaraj Tonagatti

      Ral-Great to read your comment. May I know the difference between ONLINE and OFFLINE Term insurance premium? Also, may I know the agent’s average years to stand as an insurance agent in India? Then on what belief one has to buy insurance through an intermediary?

      Reply

  29. Lakshmanan.T.P

    For package policy for motor insurance, the commission rate given is 15%. Pl clarfy whether 15% commission is applicable for the whole premium i.e both own damage and third party. Or is it confined to own damage only.

    Reply

  30. Karthik

    Thanks for the article,

    I recently bought Apollo Munich Health insurance, through their office in Bangalore, instead of buying online in their website.

    I was introduced to a person, whom i asked whether he is an agent or official/staff of Apollo Munich, to which he said, he is an agent working for 5 years in this company (Apollo Munich).
    Later during discussion, i spoke about addition amount to be paid to agent, to which he replied, the company pays him the amount and not me. Further he said, he helps in case of claims or any procedure to go through and instead of contacting customer care of the company. Told about his is irda license

    Now, did i made a mistake going to an agent, but i went to Company office to buy a plan. Did he fool me saying that company pays the commission and not me through my premiums ?

    Thanks

    Reply

    • Ral

      Dear Karthik,

      You will be charged the same, irrespective of the fact that you bought a policy through an agent or direct purchase.

      Insurance companies always absorb agency commission as marketing expense and all policies in the market are pre-designed accordingly

      Reply

  31. ATUL JAIN

    Mr. basu; as per your article, commission rates are going to change but there is no updation on IRDA website. Second, if these rates are changing, is it applicabe to all channel i.e., corporates agents, IMF etc.

    Reply

      • ATUL JAIN

        Off course; IRDA notification may be there, but i was looking for any circular from IRDA side for these changes or these Rates. I could’t find it on IRDA website but circular about “Modification in premium rates due to revised Commission/Remuneration Structure” is available on website.

        Reply

  32. K.GOPALA KRISHNAIAH

    Insurance agency is best job in the world. if we take agency there will be no boss for us. flexible working hours. commission also high. many more advantages. to promote agency profession this commission structure

    Reply

  33. Andy

    Many a times agent’s do not bother post selling the policy but they end up earning yearly commission yearly. I have no of issues that one has come cross i reached out to the PSU(LIC) and private sector company(Tata Aia) they say agent cannot be removed as per irda rules. I do not want the agent to earn comission since they are least bothered post recently selling policy. Recently i got cheated by a broker(blue chip) who sold a MIP plan of a private company(Bharti axa) and mentioned after x years the company will issue bonus which will be added up every year and paid at maturity, I was told the return has been kept at a lower rate which will only increase basis the interest rate scenario prevalent in the country. Recently when the company declared bonus it was in the range of 2.5-3.00% and i felt cheated when i complained to the insurance co about misselling and take action again broker nothing was done and the company is least bothered saying approach ombudsman. As a policy holder over the last couple of years i have been paying sizeable premium month on month.

    Reply

      • RAJESH PAI B

        Dear Basavaraj Sir,
        is there any way by which we can prevent these AGENTS from getting commissions, after 1st year commission? can we complain to IRDAI regarding agents commissions? can we complain to the insurance company? How can we prevent further c0mmissions to these agents, who escape, after issuing the policy

        regards
        RAJESH PAI B

        Reply

        • Basavaraj Tonagatti

          Rajesh-You can complain. But as of now there is no such system that you can avoid agents. Either buy DIRECT products (initially itself if insurance company provides such facility) or else continue as usual.

          Reply

      • Andy

        So are you saying nothing can be done and customer is completely at no one’s mercy. As someone who is a financial expert can you think of raising it to anyone. Is their no solution to this problem.

        Cheers, Andy

        Reply

  34. RAJESH PAI B

    Dear Basavaraj Sir,

    Regarding the commission to these agents, for any policy paying first time commission is ok. Why insurance company need to pay them every year on renewal? because once policy is issued these AGENTS disappear from picture and we only go and pay every year to the insurance company. Does it make sense to pay them every year?

    regards
    RAJESH PAI B

    Reply

    • Pramod Wankhade

      Dear sir
      In life insurance commission 1st year you have calculated correctly also in 2nd yr too, but subsequent you are calculated with 7.5 it should be with 5%
      Regards

      Pramod Wankhade

      Reply

  36. AMIT GHOSH

    i am searching for a health insurance plan for me(30), my wife (30) and my son of age 1 month with si 3 lakh. plz suggest a good policy with no room rent capping and without any co-payment.

    Reply

  37. Sreekanth

    Basu, on IRDA site, I didn’t find any policy defined for commissions. If the source of information is based on IRDA, can you please give me the link? I’ve very hard time ‘convincing’ people that such considerable amount of premium is going towards agent commission! They just don’t/can’t believe.

    I don’t have any negative impression about commission but I do have negative impression on agents because they don’t put client interests first neither they follow IRDA’s fundamental guideline that “Insurance is the subject matter of solicitation”.

    Reply

  38. sankarasubramanian

    Sir, You have taken much pains to enlighten the commission the agents are receiving through various insurance policies. Thanks.

    Reply

  39. GURUPRASAD NAGESH Kalyani

    How will we save our money when we purchasing insurance plans?
    I am also interested in group term plans as a year term.Please suggest good plans term 1 year and sum assured 500000

    Reply

  40. M JAGDISH NARAYAN SWAMY

    sir good evening , i like to BUY A HEALTH INSURANCE POLICY TO MOTHER , MY MOTHER AGE IS 59 , I REQUEST YOU SIR PLEASE ADVISE ME WHICH HEALTH INSURANCE COMPANY IS PROVIDING A GOOD CLAIM AND GIVING POLICY S UPPER AGES . I REQUEST PLEASE GIVE ME SOME DETAILS AND SOME INFORMATION IN THIS REGARDING . I AM FROM HYDERABAD AND I ALSO REQUEST IF ANY ONE IN HYDERABAD AGENTS DO YOU NOW SIR , INFORM THEM TO CONTACT ME , MY MAIL ID. mjagdishns@gmail.com
    thanking you sir,

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *