India's biggest insurer, the state-controlled Life Insurance Corporation of India (LIC), is likely to have reduced the first-year commission rate on its policies to 20% from 25% and bonus rate to 8% from 10%, reported CNBC-TV18 citing sources.
These cuts follow the implementation of higher surrender values effective 1 October. Under the new regulations, insurance companies must offer a higher surrender value for all endowment policies.
Sources indicate that LIC is also likely to have increased the renewal commission to 7.5% from the previous 5%. Furthermore, the minimum sum assured is expected to have increased to INR200,000 from INR100,000. Premiums across various products are likely to have increased in low single-digit percentages.
CNBC-TV18 has reached out to LIC for confirmation but had yet to receive a reply at the time of release of the news.
In June 2024, the IRDAI issued a master circular on life insurance products, revising surrender values. Under the changes, life insurers must pay an enhanced special surrender value after the completion of the first policy year, provided the customer has paid one full-year premium. Previously, companies did not make such payouts to policyholders who surrendered their policies within the first year.
Life insurance experts expect insurance companies to revise their distribution payout rates or rates of return to reduce the impact on their margins due to the higher surrender values.