Am sure many of you would have invested in a LIC policy in some way, either for insurance or for future investments. If not you, someone in your family is definitely paying in lakhs as a yearly premium. And why shouldn’t they?
Life Insurance Corporation of India, better known as LIC, has been a trusted name in the Indian insurance landscape for decades. And their agents play a pivotal role in bringing insurance or investment solutions to your doorstep.
But have you ever wondered how much the LIC agents earn from the policy they sold you? What’s his qualification? Does he have your best interest in mind? Let’s find out.
Estimated read time: 4 minutes and 14 seconds
Buckle up. Here we go!
LIC agents play a pivotal role in bringing insurance or investment solutions to your doorstep. They help you navigate through the maze of policies, understand the benefits, and assist you in making an informed decision about your financial security.
But how do these agents earn their livelihood? Are they qualified enough to recommend the best policy for you?
Qualification of an LIC agent
If an individual wants to become a LIC agent. His educational qualification should be at least a 10th pass and a minimum age of 18.
After matching these minimum criteria, he has an interview with an LIC development office. He has to go through training for 25 hours. After training, he has to write and pass an exam conducted by the Insurance Regulatory and Development Authority of India (IRDAI).
Once passed, he becomes an LIC agent. And now he can start selling the policies to his contacts and start earning a commission.
That’s it. He doesn’t have to complete a specialised degree from college nor does he have to achieve any work experience as an intern or assistant.
From day 1, the agent can recommend you the best insurance policies. Not just insurance, he can also recommend investment plans like money-back plans, pension plans, child plans, etc.
Commission-based earning of an LIC agent
LIC agents aren’t paid a fixed salary. Instead, they work on a commission basis, which means their income directly correlates with the policies they sell. This commission structure can sometimes lead to a potential conflict of interest. Let’s break down how this works.
When an LIC agent successfully sells a policy, they earn a commission based on the policy’s premium amount. The commission rates vary depending on the type of policy and duration of the policy – be it a term plan, endowment plan, or any other variant.
On average, LIC agents can earn anywhere from 2% to 35% (mostly, it’s around 25%) of the policy’s premium amount as their commission during the first year of the policy. Yes, you read that right – up to 35%!
For instance, if you purchase a policy with an annual premium of ₹1,00,000, the agent’s commission could range from ₹2,000 to a whopping ₹35,000.
In the second and third year, if you renew the policy, the agent earns 7.5% as a commission on the premium. And after the 3rd year, the agent earns 5% until the policy matures.
Now, that’s a significant chunk of money flowing into their pockets. And we are not even talking about the 40% bonus and other perks the agents receive.
Problems with agent’s commission-based earnings
While most LIC agents genuinely aim to provide you with the best possible insurance or investment solution, the commission structure can inadvertently influence their recommendations.
A higher-premium and longer-duration policy often means a larger commission for the agent. This creates a potential conflict of interest, where the agent might be tempted to steer you towards a policy that benefits them more than it benefits you.
Imagine this scenario: you’re looking for a simple life insurance policy to secure your family’s financial future. However, the agent might try to upsell you to a more expensive policy with additional features like a 100-year plan, which you don’t really need.
Why? Because the commission they’d earn from that policy would be substantially higher. This misalignment between your needs and their incentive structure could lead you to buy a policy that isn’t the best fit for your financial goals.
Transparency and informed decisions
Before you start feeling sceptical about every LIC agent you encounter, remember that not all agents are solely motivated by commissions. To the best of their knowledge, many are genuinely dedicated to helping you make the right choices for your family’s security.
Also, this problem is not just related to the LIC. Even other private companies have the same problem.
That’s why it’s essential to arm yourself with knowledge to ensure you’re making informed decisions.
Here are a few tips to keep in mind:
- Educate yourself: Take the time to understand the basics of different insurance policies and investment plans. This way, you can ask the right questions and gauge whether the agent is genuinely interested in your financial well-being.
- Compare policies: Don’t settle for the first policy you come across. Compare different options, premiums, and benefits to find the one that aligns with your needs.
- Ask questions: Don’t hesitate to ask your agent about their commission structure. An honest agent will gladly discuss it with you.
- Consider fee-based advice: If you’re concerned about bias, you can seek advice from a fee-based financial planner. Their income isn’t tied to the products they recommend, ensuring impartial advice.
Our goal with this post is not to degrade any company or individual agents but to educate you.
These companies and agents play a vital role in helping you secure your future, and it’s essential to be aware of the potential conflicts of interest that can arise from their commission-based income structure.
By educating yourself, asking the right questions, and staying vigilant, you can navigate this landscape with confidence. Remember, the ultimate goal is to find an insurance policy or investment plan that aligns with your financial goals and provides genuine peace of mind.
That’s it for today, buddies. Stay tuned for more insightful newsletters on personal finance topics that matter to you.
Remember to share these insights with your buddies. Until next time!
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