Agents commission in Insurance Policies ?

In this article we will see the commission structure of Insurance Policies . We will look at Endowment/Moneyback/ULIP plans and how much commission an agent earns per year out of those policies , We looked at Mutual funds commission earlier and now lets see how much commission an agent earns from Insurance policies.

As per Insurance Act, 1938, The insurance companies are allowed to pay a maximum commission of 40 per cent of the first year’s premium, 7.5 per cent of the second year’s premium and 5 per cent from there on. The commission paid is limited to 2 per cent in case of single premium policies. In case of pension plans, the commission is limited to 7.5 per cent of the first year’s premium and 2 per cent there on. Currently most of the policies are very much paying these kind of commissions . Let us quickly look some of the facts on Life Insurance .

  • Average sum assured of the insured Indian is around Rs 90,000
  • 1 trillion worth of policies lapsed in 2008-09 , this is mostly because investors have discarded their old policies to buy new one’s , thanks to agents who tell people about another “hot” plan in market. Another reason is that investors buy policies which have higher premium than what they can afford in reality and later feel that its time to stop it .
  • India Insurance penetration is around 7.5% of global numbers . i.e: 0.16% of the GDP, which is , against a global average of 2.14
  • As per IRDA report 2008-09 , Insurance Industry had 29.37 lakh agents by the end of Mar 2009 , out of which 13 lakh agents were added during 2008-09 .

Note : You might also be interested in understanding How commissions in Mutual Funds is calculated .

Life Insurance Commission Example


Policy Type Premium Paying Term Upfront Commission (1st Year) Trail Commission (2nd & 3rd yr) Trail Commission (from 4th yr)
Endowment / Term Plans 15+ yrs 25% – 35%  * 7.5% 5%
Endowment / Term Plans 10-14 yrs 20% – 28%  *
7.5% 5%
Endowment / Term Plans 5-9 yrs 14% 5% 5%
Endowment / Term Plans Single Premium 2% 0% 0%
Money Back 15+ yrs 15% – 21%  *
10% 5%
ULIPs Regular Premium
20 – 40% 2% 2%
ULIPs Single premium 2% 0% 0%

Note : Some of the numbers are in range, which means the commission can lie between that range . Mostly its minimum commission + Bonus if any

Example

  • Policy Type : Endowment Policy
  • Premium Paying Term : 20 Yrs
  • Premium/Year : Rs 1 Lacs

Agents Commission

Year
Commission Amount
Method
1st Year Rs 35,000 1 X 35%
2nd Year Rs 15,000 2 X 7.5%
4-20th Year Rs 85,000 17 X 5%
Total Rs 1.35 Lacs 6.75%

Q: So are you imaging which is more costly ? Mutual funds or Insurance Policies ?

Ans: Its Mutual Funds (Read More)  , Read subramoney’s article on this topic.

How to use this information ?

Agents have to make sure that they follow-up with clients and track the premium payment, this leads to overheads and regular feedback from agents side , apart from that there are operational expenses incurred by agents , so we should not forget those points . As a customer , you should be knowing how much an agent is making out of you , this should form the basis of the quality service for you . An agent should help you understand your Insurance requirement and provide you the best solution , He should assist you in buying the Policy and over the years he should update you/ help you with all the changes .

Hot discussion topic

As per a govt-appointed committee , Insurance commissions should totally be removed by 2011 . “Immediately the upfront commissions embedded in the premium paid (to agents by insurance companies) be cut to no more than 15 per cent of the premium. This should fall to 7 per cent in 2010 and become nil by April 2011”, said the consultation paper prepared by Committee on Investor Awareness and Protection. (Link) .

What do you feel about removing the commissions from Insurance products totally ? Will it impact the Insurance Industry , how much ? Do you think it will lead to fall in premium payments or new policy getting issued ? I personally feel YES . What are your views ?

201 CommentsAdd Comment

  1. Gaurav

    Hi , I am Planning to buy ICICI Wealth Builder II & I want to know what will be the commission to ICICI’s Employee as I am not buying it from any agent.

    • Syed Badruddin

      Sir, employee get it as his incentive more than a agent commission as you see , here in ULIP the commission shown as 25% in frist year but actually we get only 6% as agent I am the agent of ICICI Prudential, and we assist you till the end of your policy but when you purchase from Direct Channel it you have to follow for each and every switching in policy its not about commission or incentive of employee its your freedom. Plz feel free to contact me through my email

  2. rupesh

    Dear sir,
    i want to know about the ulip policy in state bank of india, i need to open 15th years premium term, so give me suggestion to invest 3000/- pm, and you will get after 17 to 18 lacs after maturity of the policy, so i know how much the agent should charge the commission on ulip policy in sbi bank.

  3. Hi,

    Need money back policy detail. if i invest every Rs.1,00,000.00 for 7 years. after 7 years how much i can get. please describe with examples.

    This is leason learnt for me.

    Thanks
    Nagashetty

  4. chetan desai

    Dear sir,
    i am agent of life insurance company and i got commission on policy . i want to know that ” is the service tax applicable on commission amount ” ? ( commission amount given by company ) kindly provide the rule /section if applicable.

  5. L MAHADEVAN

    DEAR SIR,

    I HAVE BEEN ADVISOR FOR TATA AIA SINCE 2013. IHAVE TAKEN A POLICY IN AGENTS NAME. BUT I HAVE NPT PAID COMMISION FOR THAT. IHAVE COMPLETED SIX POLICIES INCLUDING MINE. EVEN THEN MY COMMISSIO IS NOT PAID. IS THERE ANY IRDA RULE THAT ADVVISOR/AGENT SHOULD NOT TAKE POLICY ON THEIR OWN? COMMISSION SHOULD NOT BE PAID FOR POLICIES TAKEN ON THE NAME OF AGENT/ADVISOR? IRDA INSISTS/ANYCLAUSE NOT TO PAY COMMISION ON AGENT OWN NAME POLICY FOR THE FIRST YEAR?
    L MAHADEVAN ADVSISOR TATA AIA

Leave a Comment