Jagoinvestor

April 28, 2010

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.

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 .

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 ?

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 ?

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240 Comments
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Ali Asgar
Ali Asgar
3 years ago

Thanks for sharing this impressive blog. I am also LIC Agent

abhi
abhi
7 years ago

hi i m Abhijeet i give one customer to Lic new endowment plan(814/35)=premium 13790/- &lic term plan(823)/35)=14541/-
of sum assured 5000000 policy term -35 yrs, , what will be my commision in 1st year

reply me

ravish
ravish
7 years ago

Commission of insurance agents should be reduced and policy should disclose clearly that there must be discount of at least … percent in first premium in the gone days a agents has to convince the customer now it has become essentially instead of convincing the customers.

deshraj
deshraj
Reply to  ravish
7 years ago

yes good thought benefit should be given to customer

sanjeev
sanjeev
7 years ago

hi i m sanjeev i give one customer to wealth builder plan in sbi life insurance
of premium-50000/ and policy term -10 yrs, premium paying term-5 yrs, what will be my commision in 1st premium

reply me
sanjeev
9679036628

ANSHUL
ANSHUL
Reply to  sanjeev
7 years ago

10%

anshul taneja
anshul taneja
Reply to  sanjeev
7 years ago

10.%

TarunSharma
TarunSharma
8 years ago

Hello Manish,
I wanna take a term plan of HDFC income plus, it would be beneficial or not. Please suggest me

TarunSharma
TarunSharma
Reply to  Jagoinvestor
8 years ago

Manish what about their claim settlement? is it Good?
what ever they promise, they will provide all the benefits or it depends on the market ?

sandeep
sandeep
Reply to  TarunSharma
7 years ago

Tell me this information

ANSHULTANEJA
ANSHULTANEJA
Reply to  TarunSharma
7 years ago

NO, IT WILL BE BETTER IF U WILL TAKE SARAL SHIELD TERM PLAN OF SBI LIFE IN WHICH U WILL TAKE RISKCOVER AND UR PREMIUM WEVER AT THE TIME OF MATURITY.

sanchit
sanchit
8 years ago

What is commission of agent icici pru elite life 2 policy

sanchit
sanchit
Reply to  sanchit
8 years ago

Yes
What is commission of agent icici pru elite life 2 policy

Sandip
Sandip
8 years ago

Can i invest 50000 rs.yrlyfor 10 yes team for my baby’s future planing in hdfc super income plan?
Pls give me a suggestion

Sana shaikh
Sana shaikh
8 years ago

How to calculate annual premium

himanshu
himanshu
8 years ago

i am looking for an investment come tax benefit plan.. i think ULIP can help with that.. Any suggestions?

Mehul
Mehul
Reply to  himanshu
8 years ago

Hello Himanshu, Any financial planning needs to be analysed as it depends on multiple factors. What Manish said is correct for most of the investors (Mutual Funds and Term plan combination) but it may need to change based on your age, past, current and future investments.

prakas
prakas
8 years ago

Good Post Dear
I want to know what is commission of general insurance agent and which general insurance company is best for joining as a agent so please reply with detail.
thanks

chitresh
chitresh
8 years ago

Dear Sir,

is State Bank of india smart wealth builder plan better to invest.
please sir tell me about bond fund because they are saying that they will invest my 100% money to bond fund.

11% of compound return. and10 times normal death benefit , 20 times accidental death benefit

Advent Hatsan
Advent Hatsan
Reply to  Jagoinvestor
8 years ago

Why not to buy smart wealth builder

Jagadeesh
Jagadeesh
8 years ago

Hi

can you let me know agent commission percentage for Auto Insurance?

maruty
maruty
8 years ago

wht is agents commission under keyman insurance policy

ramesh
ramesh
8 years ago

sir ,i have monthly investment rs3000 and 20 year sbi life saving insurance and how many rs return after 20 year

vedhanathan
vedhanathan
Reply to  ramesh
8 years ago

Dear ramesh,

according to IRDA rules and regulations,your amount is invested in governments bonds and debentures so you are getting minimum 2.5 times of your total investment.

Gaurav
Gaurav
8 years ago

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
Syed Badruddin
Reply to  Gaurav
8 years ago

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

rupesh
rupesh
8 years ago

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.

Nagashetty
Nagashetty
9 years ago

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

chetan desai
chetan desai
9 years ago

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.

Kalpesh
Kalpesh
Reply to  chetan desai
8 years ago

No. U. Not. Have to pay service tax till now as Lic commission is not covered under service tax till date

L MAHADEVAN
L MAHADEVAN
10 years ago

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

Kalpesh
Kalpesh
Reply to  L MAHADEVAN
8 years ago

There is no. Such kind of rule .. U. should check with tata AIA insurance company for ur commission and check the policy status is it done in ur own code or not

Dr. N. Nandakumar
Dr. N. Nandakumar
10 years ago

Do agents get trail commission on pension plans. Overtime we accumulate funds in our pension plans, and when we calculate trail commission for them it doesn’t make sense continuing in such plans. Are there ways to prevent trail commission?