High commissions and rising operating costs are eating into the value of many insurance products, potentially offsetting the expected benefit of the upcoming GST waiver on retail policies.
Why commissions matter
Insurance companies spend a large part of the premium they collect on paying agents and distributors. When these payouts are high, the amount left for the customer’s protection or savings shrinks.
Impact on different insurance types
- Credit‑linked life policies: Often sold as group products with hidden commissions, making the true cost hard to see.
- Non‑linked savings plans: Heavy costs are eating into returns, making them less attractive than other fixed‑income options.
- Motor third‑party insurance: Mandatory tariffs are paired with large commissions, prompting calls for fixed fees instead.
- Retail health insurance: High payouts are still paid to attract new customers, but experts say renewal commissions should drop to keep premiums stable as policyholders age.
Regulatory backdrop
The government plans to waive GST on retail insurance policies from the third quarter of FY‑26. Earlier, the regulator removed caps on product‑specific commissions and set an overall expense ceiling, but many insurers still exceeded the limit. A new committee has been set up to review distribution costs after concerns were raised by the insurance regulator and the RBI.
What it means for customers
Because commissions can be as high as 60‑70% of the first‑year premium on traditional life policies, the net returns for policyholders are lower than advertised. If renewal commissions stay high, premiums may keep rising, especially for older customers.
Bottom line
Even with the GST relief, high distribution and operating costs could continue to erode the value of insurance products. Policyholders should compare commission structures, look for plans with lower renewal fees, and consider alternatives that offer better cost efficiency.
Remember, this is perspective, not a prediction. Do your own research before making any insurance decisions.