Donâ€™t be surprised if your life insurance agent pitches a pure term plan and the not the usual endowment, unit-linked and index-linked insurance products.
The Insurance Regulatory and Development Authority (Irda) has changed the agent commission structure in such a way that sales of pure insurance oriented plans with higher death benefit would get maximum commission and not the investment-linked short-term plans.
â€œDirection of the move is very important and we need to appreciate that. The guidelines are structured in such a way that there wonâ€™t be any product arbitrage. With the new structure, distribution channels may find pure insurance products lucrative,â€ said P Nandagopal, MD & CEO IndiaFirst Insurance Co.
As per the final Irda regulations, agents of single premium non-pension products will receive remuneration of up to 2% of the premium paid.
For policies having a premium payment term up to 5 years, they will get commission up to 15% in the first year while 10-year term policies will fetch 30% remuneration and 12-year term policies 35%.
For the second and third year, agents will get 7.5% commission, and if the policy is still in force in the subsequent years 5%.
For all single premium pension products, the commission would be 2% of the premium paid while regular pension products will fetch 7.5%.
The regulator has framed the entire format on the basis of tenure of the policies.
Under the new regime, traditional life products will include participating, non-participating non-linked and non-participating linked plans and variable insurance products (VIPs).
According to the industry experts, distributor focus will be mostly on longer tenure products where they would get up to 40% commission and may also push participating products more.
Under participating plans, the bonus is linked to the performance of the fund and is not declared or guaranteed before, whereas in non-participating policies the benefits are declared upfront.
In VIPs, too, the benefits are declared upfront, though they are linked to an index, as per the regulation.
As VIPs will be treated at par with linked products, those products will follow the same commission package for Ulips.
Under linked products, agents are entitled to commission of up to only 10%. The charge structure and discontinuance norms of VIPs will be in line with Ulips.
â€œLower commission structure of non-par products will hit insurersâ€™ sales,â€ said a senior industry official.
Insurers are not excited about floating VIP plans because of the higher charges and lower commission structure.
Sanjay Tiwari, VP – strategy & products â€“ HDFC Life, said, â€œInsurers are sceptical about floating such products because of the product structure.â€