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Sam Ghosh Founder and SEBI Regd. Investment Adviser at Wisejay Private Limited Bangalore, Karnataka
Commission structure for Life Insurance distributors
1 answer/comment
01:25:05 PM, 7th May, 2019
  • Sam GhoshFounder and SEBI Regd. Investment Adviser at Wisejay Private LimitedBangalore, Karnataka
    Profile

    In the last post, we talked about the commission structure for mutual funds distributors.

    https://www.wisejay.com/openhouse/271/Commission-structure-in-Mutual-Funds-and-why-it-matters-to-you

    In this post, we will talk about the commissions for life insurance distributors. It is important for the insurance buyers to understand the incentives insurance distributors receive because the policies suggested by them may get influenced by those incentives.

    Insurance buyers are advised to inquire about the specific commission structure for the distributor and the insurance product they are dealing with because it can vary significantly for different insurance companies.

    Also, note that as per section 41 of the Insurance Act 1938, insurance distributors are not allowed to provide any rebate on the premium from their commission.



    BASIC CONCEPTS

    Insurance distributors receive a commission as a percentage of the premiums their clients pay.

    From a premium payment point of view, there are two types of insurance products -

    1. Single Premium Products where the premium is paid once as a lumpsum.

    2. Regular Premium Products where the premium is paid at regular interval say monthly, quarterly etc.

    Note: Different types of life insurance policies:

    https://www.wisejay.com/openhouse/32/What-are-the-different-kinds-of-Life-Insurance-Plans


    At the outset, a higher premium means higher earning for the distributors. Insurance distributors have a natural incentive to sell insurance plans with a higher face value which calls for higher premiums even if the client may not need it.

    Use the following link to understand how life insurance needs to be calculated:

    https://www.wisejay.com/openhouse/192/How-to-calculate-your-life-insurance-needs



    But, the commission of the distributor varies by the type of insurance product.



    REGULATORY LIMITS

    IRDA has mandated the current commission structure for the insurance distributors through IRDA (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016 which is into force from 1st April 2017.


    Refer to the attached image for the limits on commission set out by IRDA.

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