I got a quote for an LIC term plan from an agent, and another quote for an online term plan from a private company. The LIC premium is much higher. Is this because the agent’s commission is very high?
The higher premium you see on an agent-sold LIC term plan is indeed largely due to the inclusion of the agent’s commission. However, this is a feature of the agent-sold channel in general, not something unique to LIC. The more accurate comparison is between an agent-sold policy and a direct online policy, which has zero commission.
Understanding the Commission on Agent-Sold Policies
I was discussing this with an independent insurance advisor. He explained that for any term plan sold through an agent, whether it is from LIC or a private company, the regulations allow for a significant first-year commission. This can be as high as 25% to 35% of the first premium you pay. This commission is the agent’s compensation for their advisory services, paperwork assistance, and future service support.
The ‘Zero Commission’ Model of Online Term Plans
My friend, on the other hand, recently bought a term plan by going directly to an insurer’s website. His premium was extremely low for the same coverage. The advisor explained that because my friend bought the policy online, there was no agent involved in the sales process. As a result, the commission paid was zero. This is the single biggest reason why direct, online term plans are always much cheaper than their offline, agent-sold counterparts.
The Real Comparison: Agent Channel vs. Online Channel
The advisor summed up the situation perfectly. He said, “You are not really comparing LIC to a private company on price; you are comparing two different purchase methods.” The premium for an agent-sold plan (from any company) will always be higher because the price has to account for the agent’s commission. The premium for an online plan (from any company, including LIC’s own online ‘e-Term’ plan) will be lower because it is a direct, no-commission purchase.
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