Life insurance companies are nearing an agreement to limit commissions to 30% for corporate agencies offering credit life insurance policies, according to reports.
Credit life insurance is designed to aid loan repayment in the event of the insured’s death before the loan is fully paid off.
The move towards self-regulation is in response to concerns about potential GST (Goods and Services Tax) evasion.
Although there’s no official communication from the Life Insurance Council yet, sources suggest that discussions are at an advanced stage.
Why Is This Step Being Taken?
This step is prompted by the insurance industry’s need to adapt its marketing practices.
The insurance regulator IRDAI (Insurance Regulatory and Development Authority of India) has decided to implement a product-wise cap instead of company-specific caps to address allegations of GST evasion.
Background
In March, IRDAI introduced regulations regarding commission payments, replacing traditional product-specific commissions to cap overall insurance company expenses.
Companies were directed to ensure that insurance operations’ expenses remained within an overall limit of 30%.
However, some insurers continued to offer policies with commissions exceeding 30-35% or more to boost their market share.
Reports revealed that certain bank-insurer and NBFC-insurer partnerships were offering policies with premiums increased from 5% to 35% while maintaining the same sum assured value of Rs 1 crore.
Understanding Credit Life Insurance
Credit life insurance is a policy designed to assist with loan repayment in the event of the insured’s death before the loan is fully paid off.
Although this policy is optional, its cost is added to the loan’s principal amount, resulting in a significant premium increase if customers opt for it.
