Majority of Life Insurance Customers Say Agents Prioritize Commissions Over Their Needs
83% of insurance agents earn over 10% commission on first-year premium
Mumbai: As high as 63 per cent of life insurance buyers in India believe that their agents prioritised personal commissions over customer requirements, according to a report by Upstox titled “India’s One-Hour Insurance Problem.” The report highlighted how hurried sales conversations, low product literacy and commission-led incentives are together driving mismatched life insurance purchases and rising customer dissatisfaction.
The findings show that the life insurance purchase journey is often concluded after limited engagement. As many as 63 per cent of customers received less than one hour of explanation before buying multi-year life insurance policies. Even for term life insurance, 72 per cent of buyers said discussions lasted under an hour. Customer trust levels remain mixed. Only 14 per cent rated their agent 5 out of 5 and 26 per cent rated them 4 out of 5, with a majority of 60 per cent assigning ratings of 3 or below. To add to it, half of life insurance buyers said they would not recommend their agent to anyone.
The study found strong front-loaded incentives within life insurance. A substantial 83 per cent of agents earned more than 10 per cent commission on first-year premiums, and 46 per cent earned more than 5 per cent on renewals. Sales pressure was acknowledged within the channel, with 31 per cent of agents saying that company targets sometimes pushed them to prioritise sales over client needs, while 48 per cent reported contest-driven pushes toward high-commission products. The study also noted compliance risk, with 39 per cent of agents acknowledging commission pass-backs as rebates.
The study, in collaboration with Fingrowth Media, surveyed 450 individuals and conducted qualitative discussions with 300 participants across 20 cities, covering agents from India’s top 10 life insurers. The respondent profile was relatively recent, with 57 per cent having purchased within the last two years and 93 per cent owning endowment or ULIP life insurance products.
The report identified significant product literacy gaps among customers. As many as 71 per cent could not distinguish participating life policies from non-participating ones, despite Life Insurance Corporation of India selling 57 per cent of policies as non-par. Half of respondents could not differentiate between endowment plans and ULIPs, while 52 per cent confused nominal returns with inflation-adjusted real returns. Additionally, 54 per cent of endowment and ULIP buyers said they were not informed that missing renewal premiums could materially reduce their principal.
These gaps were reflected in realised outcomes, with nearly 47 per cent of policyholders reporting that actual returns were below expectations, and 39 per cent felt misled or under-informed at the time of purchase.
Capability gaps within the advisory ecosystem added another layer. While 89 per cent of agents believed customers fully understood their life insurance purchase, the report found that 60 per cent of agents themselves did not understand Internal Rate of Return (IRR). Only 17 per cent said they always explain IRR or real returns to clients. Persistency trends underline the structural strain in life insurance, with industry retention falling from 67–70 per cent at 13 months to 45–49 per cent at 61 months.
The report concluded that India’s life insurance market is contending with a multi-layered misalignment between advice quality, incentives and customer understanding, and called for clearer disclosure of real returns and stronger needs-based selling.