Lower Insurance Commissions May Curb Mis-Selling, but IRDAI Still Matters: What Buyers Should Do

Insurance mis-selling could ease if the commissions paid to sellers come down, according to reporting by The Economic Times, but the report stresses that the insurance regulator IRDAI's role remains crucial. For a buyer, the message is that incentives shape what gets pitched to you, and rules and enforcement decide whether that pitch is honest.

Nothing in the headline changes a policy you already hold, and it does not tell you to buy or avoid any product. What it does is explain why the same salesperson may push a high-commission savings plan over a low-commission term plan, and why you should ask better questions before you pay a premium.

The article is a debate about market structure, so this piece does not invent figures or quotes from it. It sets out how commissions work in general, what mis-selling looks like in practice, and what a careful buyer can do right now.

Key takeaways

• According to reporting by The Economic Times, lower commissions may help curb mis-selling of insurance products, but IRDAI's oversight stays central.
• Sellers respond to incentives: products that pay more tend to get pitched more, whether or not they suit you.
• The costs of mis-selling usually show up later, as a poor surrender value or a claim that is not payable.
• Existing policies are not changed by this debate; the 30-day free-look period on new policies is your strongest practical safeguard.
• Buy against a stated need, such as cover, a goal or tax, and compare it with plain alternatives before signing.
• Keep written answers on exclusions, lock-ins, charges and what you get if you stop paying.

How insurance commissions work and why they matter

In India, most life and health policies reach buyers through agents, brokers, bank branches and online aggregators. The insurer pays the intermediary a commission, which is a share of the premium. You do not write a cheque for it; it is built into the premium and the product's charges.

Commission is not uniform across products. Pure protection such as term cover has historically paid the seller much less than traditional savings plans, where a large share of the first-year premium has often gone to acquisition costs. Unit-linked plans, endowment plans and some pension products sit in between, depending on the premium-paying term. Regulation sets limits on what can be paid, and IRDAI is the body that frames them.

The consequence is a conflict of interest. The product that is best for the buyer is often not the one that pays the seller most. That is the core of the mis-selling debate, and it is why people argue that trimming commissions would reduce the pull towards unsuitable products.

What mis-selling looks like in practice

Mis-selling is rarely an outright lie. It is more often a pattern of emphasis, and these are the forms buyers meet most:

1. A savings plan presented as an investment or fixed deposit. Guaranteed-sounding returns are quoted without saying that the effective yield may be modest over the full term.
2. A plan with a long premium-paying term sold as a short one. You are told you pay for a few years, but the contract needs a longer commitment.
3. Insurance bundled with a loan or a bank account. You assume the cover is required, when it may be optional.
4. Health-policy exclusions and waiting periods glossed over. The brochure says covered, but the fine print says after a waiting period or subject to sub-limits.
5. Senior citizens being steered towards products they do not need. Often the pitch uses the language of safety and guaranteed income.

The damage tends to appear years later, when a policy is surrendered early, lapses, or a claim is contested.

What changes for buyers if commissions fall

If commissions come down, the incentive to push the most lucrative product shrinks. In theory that means advice drifts closer to what suits the customer. But there are trade-offs, and the honest version is mixed.

Aspect	If commissions are higher	If commissions are lower
Pitch bias	Tilts towards high-paying products	Less tilt, but not zero
Seller willingness to advise	Strong, since the sale pays	May weaken for small-ticket sales
Product cost to you	Charges can carry acquisition costs	Room for lower charges, if insurers pass it on
Need for regulator checks	High	Still high, as targets and bundling remain
Your own homework	Essential	Still essential

The last row matters most. Lower commissions are a reason for optimism, not a reason to stop reading the policy document.

Why IRDAI's role stays crucial

The Economic Times framing, as reported, is that commission cuts alone will not do the job. That fits how the system works. IRDAI is the regulator that frames rules on how products are designed and sold, what disclosures must be made, how complaints are handled and how intermediaries are licensed.

Incentives are one lever. Others sit entirely with the regulator and the insurers:

• Clear disclosure of charges, surrender values and exclusions in plain language.
• Rules on the free-look period, which currently gives most policyholders about 30 days to return a policy and get a refund, less limited deductions.
• Standards for suitability, so an elderly buyer is not sold a 20-year product.
• Action against intermediaries and insurers with high complaint or claim-rejection patterns.

A seller determined to hit a target can still mis-sell on a low commission, so policing remains necessary.

A worked example: what early exit can cost

Consider an illustration with assumptions we are making ourselves, not figures from any report. A household buys a traditional savings plan with an annual premium of ₹1,00,000 and a 10-year premium-paying term. Total premiums if they pay to the end: ₹10 lakh.

Item	Illustrative amount
Annual premium	₹1,00,000
Premiums paid by end of year 3	₹3,00,000
Assumed share of first-year premium going to selling and set-up costs	30% (₹30,000)
Assumed share of later premiums to costs	5% (₹5,000 a year)
Total assumed costs by year 3	₹40,000
What surrender value may look like	Often well below ₹3,00,000 paid

The point is the shape: front-loaded costs mean the early years are the worst time to exit. Compare the yield with what a safe deposit pays; the current bands are on our interest rates page. If a plan's real return does not clearly beat that for the same lock-in, ask why you are buying it.

Who is affected and who is not

More affected: first-time buyers, senior citizens, people approached through bank branches, and anyone who is told a policy is a savings product.

Less affected: buyers who know exactly what they want, such as a pure term plan or a standard health cover, and who compare options themselves.

Not affected right now: holders of existing policies. A debate about commissions does not alter your contract, your premium or your claim rights. If you suspect you were mis-sold, the route is the insurer's grievance process, then the Insurance Ombudsman, with IRDAI's complaint channels as an escalation.

What to do now: a buyer's checklist

1. Write down the need. Is it income replacement, health cover, a child's education fund or tax saving? A product that does not match a stated need is a sales outcome, not a plan.
2. Ask how much of your premium is cover and how much is savings. If the seller cannot answer clearly, walk away.
3. Ask for the surrender value in years 1, 3 and 5, and the lock-in period, in writing.
4. Read the exclusions and waiting periods on health policies before the premium page, not after.
5. Use the free-look period. If anything in the policy document differs from what you were told, return it within the window.
6. Check optional insurance on loans. If cover comes bundled with a loan, confirm whether it is mandatory. Our personal loan guides explain which add-ons are optional, and the EMI calculator will show how a financed premium inflates your cost.

Common mistakes to avoid

• Treating insurance as an investment with guaranteed returns without checking the effective yield.
• Paying a long-term policy from borrowed money.
• Signing a form with blanks, or letting someone else fill in health details.
• Ignoring a lapse notice, which can wipe out the value you built up.
• Buying for tax saving in March without checking whether the product suits you.

For more reporting on money rules that affect households, see our news hub.

Frequently asked questions

Will lower commissions make my insurance cheaper?

Not automatically. Lower commissions create room for lower charges or better benefits, but whether insurers pass that on depends on competition and regulation. Compare quotes and cost disclosures rather than assuming a price drop.

Does this affect the policy I already hold?

No. The reporting is about the structure of the market, and a policy already issued stays on its contract terms. If you think it was mis-sold, raise it with the insurer and then the Insurance Ombudsman.

How long do I have to cancel a new policy?

Most new life and health policies carry a free-look period of about 30 days from receiving the document, during which you can return it and get a refund after limited deductions. Check the exact period in your policy document, since it can differ by product and mode of purchase.

How can I tell if a plan is being mis-sold to me?

Warning signs include guaranteed-sounding returns with no breakdown, pressure to buy before a deadline, vagueness about the premium-paying term, and no written surrender values. If the pitch avoids the cost of leaving early, treat it with caution.