Among the issues that plague India’s personal finance advisory space, the mis-selling of financial products that may not be compatible with your needs is of great concern — and life and health insurance policies are no exception to this. As per the Insurance Regulatory and Development Authority of India (IRDAI) Annual Report (2021–22), 25,716 complaints of unfair business practices were registered against life insurers during that year. The previous year’s IRDAI Annual Report cited incorrect explanations of product features and benefits by salespersons, pressure to meet sales targets, and lack of adequate knowledge or training of salespersons — among other reasons — as potential causes for complaints of mis-selling. Often, these mis-sold policies are the ones that have high commissions attached to them, which is why it helps to understand what part of your insurance premium is comprised of commission.
Our Commission Analyser calculates the approximate commission component of your insurance premium. If you have an existing insurance policy, the Analyser helps you consider how the policy aligns with your interests. If you are seeking to purchase insurance, you can use the Analyser as a tool for exploration. Of the many categories of insurance policies out there, we decided to focus on two of the most popular products that are often present in a basic financial plan. First, the tool applies to life insurance policies — including term insurance and endowment insurance. Second, within general insurance policies, you can use the tool for health insurance policies.
We ask for basic information about the type of insurance, your premium amount and frequency, and the number of years for which you’ve paid the premium so far. Based on these inputs, we arrive at an estimate of the commission you’ve paid on your insurance premium over the course of time you’ve held the policy for.
Our calculations are based on an average that considers the commission percentage thresholds set by the IRDAI for each type of policy. We also take into account our careful study of industry standards for commissions and a set of informed assumptions — these differ based on the type of product category and the insurer. Since insurance is inherently a distribution-based financial product, our estimations are also cognisant of the different distribution channels involving insurers, agents and brokers — and the different commission thresholds defined for each of them by IRDAI.
For life insurance policies, which are a long-term product, the commission component of the premium is greater in the initial years, and subsequently reduces. Health insurance policies, on the other hand, have a one-year renewal contract and a flat commission percentage (around 15%) across all insurers. In both cases, the Commission Analyser gives you an idea of how this commission accrues over time. Knowing this figure only serves as a starting point for you to look into the terms and conditions of your policy more closely and check with your advisor to understand if it meets your needs.
Ultimately, our idea behind the Commission Analyser is to increase transparency. It gives you a point of reference to understand if your insurance policy is offering value to you. This is a tool meant for exploration and empowerment — to help you take control of your financial future and choices.