POSTED BY April 28, 2010 COMMENTS (238)ON
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 .
|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% *
|Endowment / Term Plans||5-9 yrs||14%||5%||5%|
|Endowment / Term Plans||Single Premium||2%||0%||0%|
|Money Back||15+ yrs||15% – 21% *
||20 – 40%||2%||2%|
Note : Some of the numbers are in range, which means the commission can lie between that range . Mostly its minimum commission + Bonus if any
|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 ?