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Insurance IRDAI hikes upfront commission to 40% in term plans

IRDAI hikes upfront commission to 40% in term plans

Nishant Patnaik Dec 28, 2016

The insurance regulator has prescribed uniform commission structure for all life insurance intermediaries to create a level playing field.

IRDAI has a new year gift for insurance intermediaries. The insurance regulator has hiked the upfront commission and trail commission in selected segments and made the commission structure uniform across all intermediaries such as agents, brokers, corporate agents, insurance marketing firms and web aggregators.

In order to promote pure risk insurance policies which are essential for people having dependent, IRDAI has issued a circular in which it has hiked the first year commission (upfront commission) in term insurance plans irrespective of term of the policy to 40% of annual premium.

Currently, the first year commission payouts under such policies ranges between of 20% and 35% of annual premium.

However, the regulator had proposed to hike the first year commission under such policies at 50% in the draft regulations.

Similarly, trail commission or commission on renewal of policies has been increased from 5% to 10% of annual premium under term insurance policies.

Under group term plans, insurers can pay up to 5% of annual premium not exceeding Rs. 10 lakh as upfront as well as trail commission.

Traditional plans

Commission payouts in policies other than pure risk (traditional policies) like whole life, endowment and money back remain unchanged. While the first year commission in traditional policies having over 12 years of premium payment term will continue to be 35% of annual premium, insurers can pay up to 15-33% of annual premium on policies having premium paying term of less than 12 years depending on the tenure. Higher the tenure, more would be the upfront commission.

So far, commission payouts under traditional policies were depended on age of the company - insurers who have completed 10 years of operations can pay first year commission of up to 35% while others can pay up to 40% of annual premium.

The insurance regulator has fixed the trail commission at 7.5% throughout the premium paying term. Earlier, the trail commission on such payouts was 7.5% from second to fifth year and 5% thereafter.

Under group savings variable policies, insurance companies can pay the first year commission and trail commission of 7.5% of annual premium on policies throughout the premium paying term.


IRDAI has kept the first year commission under annuity plans or pension plans at 7.5% of annual premium and 2% of annual premium in the subsequent years.

Single premium policies

All single premium policy will continue to pay 2% of premium payment as commission. However, under single premium policies of term plans, insurers can pay up to 7.5% as commission.

Level playing field across all intermediary channels

Interestingly, IRDAI has streamlined the commission structure in order to bring parity among all types of intermediaries. The insurance regulator has prescribed uniform commission structure for agents, brokers, corporate agents, insurance marketing firms and web aggregators to create a level playing field.

So far, insurance agents were getting higher commissions and rewards as compared to brokers and other intermediaries. These intermediaries were getting 25% of annual premium as upfront commission.

Other key highlights of the circular

IRDAI said that insurance companies will have to take approval of the board before fixing commission structure of agents. However, IRDAI has clarified that insurers cannot pay less than the prescribed commission structure.  This has come into effect immediately. 

SAJEEV · 1 year ago
A good initiative against MIS SELLING.
TERM PLANS SHOULD BE PROMOTED as cheap and best essential income protection products
Prashant · 1 year ago
Now when aggregators will earn same as agents without doing half a work as agents do. Agents go to customers and follow up for years sometimes and get the business and we serve them throughout the policy and most importantly we give them atleast 13 different services related to their policy especially claims. Web aggregators never face the customers face to face. They never provide any services. They never help in claims. They just negotiate commission with companies and put the product on their websites and earn free commissions. Still IRDA giving them same commission is a malicious move.
Jagdish Manghnani · 1 year ago
If irda wants to promt term plans the difference between premiums online or through agents should be the commission earned by the agent or charges of the agent to be taken from the policy holder as in the case of mutal funf
Rupesh · 1 year ago
infact i am of the opinion that on term plan there is no need to give higher commission. may be you can give higher commission for 1st year. and there should be difference in 1st year between online and offline premium and not more than 2% from 2nd year onwards.
rupesh · 1 year ago
selling offline policies at higher premiums is also kind of mis selling.
Rupesh Shah · 1 year ago
there has to be some reasonable difference in premiums of offline and online policy. can not justify difference to clients and also its not good to make client pay higher premiums for our earnings.
Good to know that IRDA wants to promote term plans for the cause of common man well being !! But most of the banks promote term based on their interest on their 1st year commission !! Banks are not bothered whether the same customer renews every year till the pay term.
Hiking the commision payout to 40% should also linked to some addl.conditions i.e
1. The banks or the agents should ensure that the policy holder pays premium for minimum 5yrs,. Discontinuing the policy before 5 years, commission should be recovered from the bank /individual agent. Otherwise, majority intermediateries will be interested in 1st year commission only. This is happening as of now also !!
2. Pay higher commissions to only selection institution & selected agents who
sell more term plans, who ensure protecting the family interest of policy
holder as per IRDA genuine intention to safe gaurd the dependents of policy holders !!
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