Livemint reports that insurance often rewards the person selling a policy more than the person buying it. We're relying on that report for the development itself. We haven't added any figures to it.
What does that mean for you? Don't buy a policy just because an agent or a bank staffer pushes it. Check the cost, the cover and what you'll really get back before you pay.
Key takeaways
- The person selling a policy usually earns a commission, and the buyer pays for it through the premium.
- A product that pays the seller well isn't always the one that suits you.
- A term plan is usually the cheapest way to get large life cover.
- You can ask for the full cost and exit terms in writing.
- You get a free look period to cancel a new policy after it arrives.
How insurance selling works in simple terms
When you buy a policy, your premium doesn't all go to your cover. Part of it can go to the seller as a commission. That's normal in the industry, and it pays for advice and service.
The trouble starts when pay differs by product. A seller may earn more on one plan than on another. That can tilt the advice toward the plan that pays best. It might not be the plan that fits your life.
You, the buyer, mostly want one thing. You want your family protected, or your money to grow safely. Those goals can clash with the seller's goal of earning more.
What changes for you: a worked example
Here's an example with round numbers. They're only for illustration, not quotes from any insurer. Say you're 30 and you want to protect your family.
A term plan is pure cover. It pays your family if you die during the plan. Nothing comes back if you outlive it. A savings-type plan mixes cover with a payout at the end. It usually costs far more for each rupee of cover.
| Option | Yearly premium (example) | Life cover (example) | What you get |
|---|---|---|---|
| Term plan | ₹12,000 | ₹1 crore | Cover only |
| Savings-type plan | ₹50,000 | ₹5 lakh | Small cover plus a payout later |
| Term plan plus your own savings | ₹12,000 + ₹38,000 | ₹1 crore | Big cover plus savings you control |
Pay ₹50,000 a year for 20 years and you've paid ₹10 lakh. Compare what that money bought. The cover and the final payout are what matter, not the sales pitch.
Who is affected
Many kinds of buyers can be hit when the sales incentive is wrong.
- First-time buyers who trust the seller completely.
- Senior citizens who are offered long plans with lock-in periods.
- Borrowers who are offered insurance along with a personal loan or a home loan.
- Anyone who signs quickly because a seller made it sound urgent.
If you already hold a policy, you aren't stuck with it. You can review it and compare it with your needs.
What to do now
A few simple steps can protect you. Do them before you pay, not after.
- Write down why you want the policy. Is it cover, savings or tax saving?
- Ask the seller how much commission they earn on it.
- Ask for the total premium you'll pay over the full term.
- Ask what you'd get back if you stopped after two or three years.
- Compare it with a plain term plan from another insurer.
- Read the policy within the free look period and cancel if it doesn't match what you were told.
IRDAI, the insurance regulator, sets rules on how policies are sold and explained. Buyers also get a free look period after the policy arrives, which is at least 15 days. Check your policy papers for the exact window. For more stories like this, visit our news hub.
Frequently asked questions
Is it wrong for an insurance seller to earn a commission?
No, it's a normal part of how insurance is sold. The concern is when the commission steers you to a product that doesn't suit you.
Can I cancel a policy I was mis-sold?
Yes, you can try. Use the free look period if you're still within it. After that, write to the insurer and, if needed, take the matter to the regulator.
Is a term plan always the better choice?
Not always, but it's the right start for most people who need cover. If you also want savings, you can invest separately and keep control of that money.
BankCreds analysis
The real cost is the gap between what you need and what you're sold
The headline sounds like a scandal. The everyday problem is smaller and more common. Most sellers aren't cheating anyone. But the pay system can nudge them toward the product that pays them best.
Take a family with a ₹50,000 yearly budget for insurance. Spent on a savings-type plan, it may buy only a small cover. Split as ₹12,000 for a term plan and the rest invested, the same family gets far more cover. The gap can be crores in protection.
Don't over-read this story. It doesn't mean every agent is acting in bad faith. It doesn't mean every savings-type plan is bad. Some people truly want forced savings. This week, just ask one question before you sign: what does this product pay you? Honest sellers will answer.
This section is BankCreds' own assessment of what the development means for Indian borrowers and savers. It is independent commentary, not part of the source reporting above.
Sources & references
- Livemint — originating report https://www.livemint.com/newsletters/irdai-distribution-reforms-insurance-misselling-11792766175412.html
- IRDAI — Insurance regulator that sets rules on selling, disclosure and the free look period https://irdai.gov.in/
Source links are shown as plain text, not clickable links. Copy a URL into your browser to read the original report.
Editorial note & disclaimer
How this was reported. The development above is attributed to the source or sources listed. BankCreds does not independently verify a third party's reporting; where a figure or a regulatory position is stated as fact, it is either attributed or drawn from the regulator's own published material. Everything under "BankCreds analysis" is our own assessment.
Rates and figures. Interest rates, per-gram values and premium bands quoted here are indicative, move daily, and differ by borrower profile, city and lender policy. Confirm the final number with the institution before you act on it — the sanction letter or policy schedule governs, not a news report.
Not financial advice. This article is general information for an Indian audience. It is not investment, tax, credit or insurance advice, takes no account of your circumstances, and BankCreds is not a lender, broker, distributor or advisor. Consider speaking to a SEBI-registered investment adviser or a qualified professional before acting.
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