Why Your Agent Doesn’t Recommend Term Insurance: IRDAI’s Commission Probe
Updated 6 min read
Updated October 2026: IRDAI has since published its own commission data and proposed commission caps in a 23 September 2026 consultation paper on distribution reforms. This article now uses those figures.
IRDAI has quietly begun asking every life insurer in the country to hand over granular data on how commissions flow through the system, Moneycontrol reported on April 15. The regulator wants channel-wise payouts (agency, bancassurance, brokers, direct), product-level splits (ULIP, participating, non-participating), first-year versus renewal breakdowns, and distributor-level earnings including bonuses, non-cash rewards, and persistency metrics.
This is not a routine data call. ICICI Prudential Life’s CFO Dhiren Salian confirmed to Moneycontrol that the regulator has sought “granular, bottom-up data on commission structures,” though no formal proposal has been circulated yet. The level of detail points to a diagnostic exercise, with IRDAI attempting to map where incentives flow and where distortions are emerging.
The commission gap at a glance: In FY25, life insurers paid around ₹60,800 crore in commissions, up 18% year on year, while premium growth came in at just 6.7%. The commission expense ratio climbed to 6.86% from 6.21%. Distribution costs are growing nearly three times faster than the business itself.
The term insurance problem hiding inside those numbers
If you have ever wondered why your insurance agent pitched you an endowment plan or a ULIP instead of a term policy, commission is a big part of the answer, though not in the way most people assume.
The commission rate on term insurance is not low. IRDAI’s own data, published in its September 2026 consultation paper on distribution reforms, shows that pure term plans paid an average first-year commission of 51% of premium in FY25, with a maximum of 81%. Participating savings plans averaged 37% and ULIPs 14%. These figures include rewards and incentives, and exclude policies bought directly or online.
What differs is the premium the rate applies to. Savings plans typically carry much larger premiums than term plans, because most of what you pay is meant to build a maturity amount. So even at a lower rate, a savings plan pays the seller more rupees. The math makes the sales conversation predictable.
This is not speculation. A February 2026 survey of 450 insurance buyers and 300 agents across 20 Indian cities (published by Upstox and Fingrowth Media) found that 83% of agents earned over 10% commission on first-year premiums. Nearly half (48%) reported that contest-driven incentives steered them towards high-commission products. And 39% admitted to commission pass-backs as rebates, a practice that is illegal under IRDAI regulations.
From the buyer’s side: 63% of respondents said they believed their agent had prioritised personal commissions over the buyer’s needs. 47% said actual returns fell below expectations. And 39% felt misled or under-informed at the time of purchase. 93% of respondents in the survey owned endowment or ULIP products.
What the data call signals
IRDAI has been moving in this direction for a while. In April 2023, it abolished product-specific commission caps and left each insurer free to set its own schedule, subject to an overall expense ceiling at the company level. IRDAI’s September 2026 paper shows what followed in the corporate-agent channel (banks and other firms licensed to sell insurance): between FY23 and FY25, total pay-outs to the corporate agents IRDAI sampled rose about 125%, from roughly ₹9,580 crore to ₹21,600 crore, while the new business premium they brought in grew about 28%.
Parliament’s passage of the Insurance Amendment Act in December 2025 gave IRDAI explicit new powers to regulate commission structures. The data-gathering exercise reported by Moneycontrol suggests the regulator is now building the evidence base to act on those powers.
The question is whether any restructuring will narrow the commission gap between term and traditional products enough to change agent behaviour. If selling a term plan and selling an endowment become roughly equivalent in earnings-per-hour for the agent, the sales conversation changes. If the gap stays wide, agents will continue to do what any rational economic actor would do: sell the product that pays them more.
Update, October 2026: the proposals are out. On 23 September 2026, IRDAI published a consultation paper on distribution reforms that proposes maximum commission limits. For a regular-premium individual pure term plan, the proposed first-year cap is 25% of premium for distribution entities and 30% for agents. For individual savings and linked plans with a premium-paying term of 10 years or more, it is 20% and 25%. These are proposals, not final rules.
What this means if you are buying insurance right now
Compare online. Aggregator platforms already let you compare term plans across insurers without an agent in the loop. The premium you see is the premium you pay.
Ask your agent one question. If someone recommends a savings-linked insurance product, ask them to write down the projected internal rate of return at maturity. The survey found that 60% of agents did not fully understand IRR themselves, and only 17% consistently explained it to buyers. If the agent cannot answer, that tells you what you need to know about the advice you are getting.
Check your existing cover. If your only life insurance is an endowment or money-back plan, the sum assured is likely a fraction of what your family would need. A separate term policy fills that gap at a fraction of the cost. Our guide on spotting mis-selling warning signs can help you evaluate whether your current policies were the right fit.
Frequently asked questions
What data has IRDAI asked insurers to submit?
Channel-wise commission payouts (agency, bancassurance, brokers, direct), product-level commission structures (ULIP, participating, non-participating), first-year versus renewal splits, distributor-level earnings including bonuses and non-cash rewards, expense of management ratios, and persistency metrics.
Will this lead to lower term insurance premiums?
It is too early to say. Term commissions are not low today: IRDAI’s data puts the first-year average at 51% of premium in FY25. Its September 2026 proposals would cap first-year commission on regular-premium pure term plans at 25% for distribution entities and 30% for agents. Whether any saving reaches you as a lower premium would be up to insurers, and the proposals are not final.
Should I wait for the new commission rules before buying term insurance?
No. IRDAI’s commission proposals, published on 23 September 2026, are still a consultation paper; the final rules and their start date are not known yet. Term insurance premiums are based on your age at the time of purchase. Waiting makes the policy more expensive regardless of commission changes.
Sources: IRDAI, consultation paper on distribution reforms, 23 Sep 2026 (Part 2, Annexure 1 and Annexure 3 Table 1; Part 1, Box 4B); Moneycontrol (Apr 15, 2026); Upstox/Fingrowth Media, “India’s One-Hour Insurance Problem” survey (Feb 2026); CafeMutual on Insurance Amendment Act 2025.
Related reading: IRDAI’s mis-selling draft: what changes at the counter, and what doesn’t
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Disclaimer: This article is for informational purposes only and does not constitute insurance advice. Consult an IRDAI-registered insurance advisor for recommendations tailored to your specific financial situation and needs.
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Gyansurance EditorialThe Gyansurance Editorial team is a mix of financial journalists, insurance advisors and copy editors. Together, we are aiming to demystify life insurance for Indian readers around the world.
