Investors usually part with considerable amounts of money in the name of commissions to agents on insurance products. Although the customer has the right to demand to know the agent’s commission, the agent is not obliged to disclose. This is unlike mutual funds that are mandated by the Securities Exchange Board of India (SEBI) to disclose commissions paid to distributors. The commissions reflect on the common account statements sent to investors showing absolute figures in order to avoid ambiguity. Below are creative ways which you can know your insurance agent’s commission.
For Unit Linked Insurance Plans (ULIPS)
, the commission is disclosed as the last column of the benefits illustration. The difference in the commission structure of ULIPs and Mutual Funds is found in the structure; ULIPs usually bear high commissions in the initial years while commissions usually grows over the years (with growth in the portfolio) in mutual funds. This is occasioned this way by the mode of payment of commission by insurance companies, in that insurance companies pay commission only on new premiums, contrary to mutual funds which pay commission as the corpus accumulates, also known as the trail commission.
Term Plans and Other Insurance Plans
; however do not have the commission structure readily available. Customers can however skirt this information gap. By comparing the costs between the off line version and an online version of the same product, customers can derive a fairly accurate idea on the cost that is allocated to commissions.
For products that have some monetary returns to the customer
, The Regulator (Insurance Regulator and Development Authority (IRDA) of India demands that a detailed benefit illustration should be given to the customer. This however leaves out the element of commissions paid to the agent. Customers can calculate the commissions based on the minimum prescribed growth rates (prescribed at 4 percent and 8 percent) and the return they are going to get. Care should be taken at this point since the prescribed model growth rates are regulator set and not the actual market rates that will be applied.
Products that have and Element of “Guaranteed Returns”
however do not necessitate scrutiny of the commissions and expenses. To check on the commissions, compare the guaranteed rate offered against the rates available in other competitive products.
For insurance products, the commission details are usually not availed in the benefits illustrations. However, you can request this information from your agent and the agent will give you. It must be noted however that the agent is not obliged by any rule to disclose commission information voluntarily and such a request is normally responded to.