In October 2024, the Life Insurance Corporation of India (LIC) introduced significant changes to its commission structure for agents, reducing the first-year agent payout from 35% to 28%. This comes alongside a revision in surrender value norms, which has implications for both agents and policyholders. Let’s break down these updates to better understand the impact of these changes.
Key Changes and Their Impact
| Change | Details |
|---|---|
| First-year Agent Commission | Reduced from 35% to 28% of the premium. |
| Renewal Commission | Increased to 7.5% from 5% on renewal premiums. |
| Minimum Sum Assured | Raised to ₹2 lakh from ₹1 lakh for policies effective 1st October. |
| Premium Increase | LIC raised premiums by 8-9% across life insurance products. |
| Surrender Value Norms | Policyholders can now surrender only after one full premium year. |
Understanding the New Commission Structure
Impact on Agents
The reduction in the first-year commission forces agents to adapt by selling more policies to maintain their income. Although their initial earnings from a new policy drop, the increase in renewal commissions provides better long-term income potential. This aligns agents’ incentives more with long-term client retention, ensuring that agents have a vested interest in policyholders maintaining their coverage.
Impact on Policyholders
Policyholders face two major changes: the requirement to hold policies for at least a full year before qualifying for surrender value, and an increase in life insurance premiums by 8-9%. This change aims to improve the retention of policies and make insurance a long-term financial commitment for the insured.
Example Scenario
Consider an agent selling a ₹1 lakh premium policy. Under the old commission structure, the agent would earn ₹35,000 in the first year. With the new system, the agent now earns ₹28,000 in the first year but benefits from a higher renewal commission of ₹7,500 in the second year, up from the previous ₹5,000. While this may reduce immediate income, the revised structure offers greater rewards for maintaining long-term relationships with policyholders.
Frequently Asked Questions (FAQs)
- Why has LIC reduced first-year agent commissions?
The decision is part of a broader regulatory update aimed at improving policyholder retention. By reducing first-year commissions and increasing renewal payouts, LIC incentivizes agents to focus on long-term relationships with their clients. - What is the impact on policyholders?
Policyholders must now maintain their policies for at least one full year to qualify for surrender value. Additionally, the premium for life insurance products has increased by 8-9%. - How does the new commission structure affect agents?
Although first-year commissions have been reduced, agents stand to benefit from increased renewal commissions, encouraging them to foster long-term relationships and reduce policy lapses.
Conclusion:
The changes introduced by LIC in October 2024 are designed to promote long-term policyholder commitment and ensure agents are compensated for retaining clients over a longer period. Policyholders will now pay slightly higher premiums and must hold their policies for at least one year before they can surrender them. For agents, while the initial payout has decreased, the increase in renewal commissions provides more sustainable income growth.