An insurance agent for high net-worth individuals can pay you richly

It could be best if you work with HNIs buying policies with good sum assured

Did you know that Abhishek Bachchan was an agent of Life Insurance Corporation of India (LIC) before he started acting? Well, there are many such celebrity insurance agents. For example, Ritu Nanda, wife of Escorts group chairman Rajan Nanda, is a well-known LIC agent for over two decades. She has appeared in several advertisements, and reports suggest she occupied the top position in terms of annual first premium income many times. 

Many high net-worth individuals (HNIs) become insurance agents because of two reasons. First, they help their friends and family members choose the right product as fear of mis-selling is high in insurance products. Second, there is a significant amount of income in terms of commissions given most of the policies for HNIs are high-value policies. 

Naval Goel, chief executive officer and founder of PolicyX, says: “Becoming an own family agent carries its own benefits. It saves both time and money. On becoming an agent, the amount we pay as commission — around 20 to 30 per cent — to buy any insurance plan from an agent, gets saved.” On becoming an agent, you get the benefit of cutting down on a chunk of your insurance premium. 

Mis-selling of insurance policies is among the biggest problems in the insurance industry. Higher upfront commissions increase the probability of mis-selling. Insurance agents take advantage of the lack of knowledge related to insurance among investors and push products with a high upfront commission. After they have collected their commission, they do not bother following up with policyholders. 

The high number of non-renewals for life policies — over 30 per cent of non-renewals in certain companies —is a reflection of the lack of interest in agents to renew policies. Goel adds, “An agent from the family keeps transparency and will also offer the right plan with the right coverage according to the needs of the family.”

Though things have changed in terms of commissions over the past couple of years, they continue to be significantly higher than other financial products. Some of the online products also have zero trail commission. Offline unit-linked insurance plans (Ulips) have 5-15 per cent of the premium as upfront commission, whereas for traditional products the upfront commission ranges from 10 per cent to up to 80 per cent. 

For offline Ulips, trail commission ranges from 2-5 per cent and overall charges cannot exceed 3 per cent of the premium over the policy duration. Trail commission for traditional plans ranges from 5-15 per cent for traditional plans. Commissions, however, vary depending on how a company files the product.

In a recent meeting of the Financial Stability and Development Council (FSDC), the committee suggested moving from upfront to a trail commission model. The committee further stated that an upfront commission should only be paid for pure insurance products, and for the insurance portion of bundled products.  

To become an insurance agent, one has to pass exams by the Insurance Regulatory and Development Authority of India. “One should ideally practice it over a period of time to be able to understand the subject well, and then be able to come into an advisory role,” says Santosh Agarwal, Associate Director and Cluster Head (Life Insurance) at Policybazaar.com.