Know how the agent Earns by selling you Insurance policy

Highlights
  • Till now life insurance companies used to show commissions and such rewards separately, this is going to change.
  • Rewards are often reported as a part of total operating expenses, to be shown as a commission.
  • The new rule will make it easier for policyholders to understand the payment structure, there will be no impact on returns.
  • Some policyholders may ask their agents for a share when they know about commissions and rewards.
  • Intermediaries often sell investment schemes with insurance inaccurate information due to high commissions, rewards and lack of structure.
Rewards are an incentive to sell products with high commission.
insurance agent earning from selling insurance policy
Founder of Optima Money Managers said, "These rewards are given in addition to the commission for the target achieved. These can be in the form of sponsored holiday, home appliances or apparel.'Till now life insurance companies used to show commission and such rewards separately. It is going to change now.

Insurance new rule book

The Insurance Regulatory and Development Authority (IRDA) has directed insurance companies to show such rewards and commissions to agents, brokers or other intermediaries as 'commissions' in their financial statements. IRDA has allowed insurance companies to reward up to 20% of the first year's commission to such distributors, Those whose revenue from non-insurance intermediary business does not exceed 50% of their total revenue in a year. The objective is to encourage agents who rely mainly on their agency business for livelihood.
Also read: Know Which are Top Insurance Companies 

EoM Disclosure of Insurance company

IRDA has also stated the need to bring equality in Expense of Management (EoM) disclosures of insurance companies. EoM consists of expenses related to administration, operating and commission as well as total expenses of insurance companies. IRDA has also made rules to show these expenses.

No effect on returns (Insurance Policy)

Some insurance companies charge more than the limit fixed in the shareholder's account. Now they have to first charge it in the policyholder's account. These steps of IRDA are to make accounting practices standard and will not affect returns. However, they will increase transparency, which is in the interest of policyholders and investors.

Conclusion

It has become mandatory for insurance companies to disclose agents' commissions, which will make it easier for policyholders to understand the expenses. The objective is to encourage agents who rely mainly on their agency business for livelihood.