Life Insurance Commission Rules for Composite Brokers

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 came into force on 5 February 2026, and among the changes it introduced were composite licences, perpetual intermediary licences, and 100 percent foreign direct investment in intermediaries. The composite licence is the one reshaping conversations inside broking firms this year, because an insurer permitted to write both life and non-life will bring both to the same corporate relationship, and the client will assume its broker can advise on both.

Whether your firm actually may is a separate question, answered by your own registration category under the IRDAI (Insurance Brokers) Regulations, 2018, not by the Act. A direct broker registered for general business only does not acquire life authorisation because an insurer's licence changed. Check the certificate before the pitch, because a firm that solicits outside its category has a conduct problem long before it has a commission problem.

For firms that do hold life authorisation and have never used it, the honest position is that life brokerage is a different business with a different balance sheet, not an extension of the one you run. A property programme is placed, brokerage is earned on the gross premium, and the transaction is essentially complete within the policy year. A life policy sold in July 2026 generates income in 2033, or generates a servicing liability with no income at all, depending on a variable you do not control and probably do not currently measure.

Non-life brokerage is a single number applied to a single premium. Life commission is a schedule, and the schedule has at least three columns.

First-year commission attaches to the first year's premium on a regular premium policy. It is the largest number by a wide margin, and it is the number every public argument about mis-selling is actually about. Under the IRDAI (Payment of Commission) Regulations, 2023, product-wise caps were removed from April 2023 and each insurer sets commission through its board-approved policy inside the expense envelope. There is no statutory life commission table to look up any more. There is only the insurer's schedule, and it varies by product, by premium paying term, and frequently by distributor category.

Renewal commission attaches to each subsequent year's premium for as long as the policy stays in force and premiums keep arriving. It is a small percentage of a recurring number, and it is the only reason a life book is an asset rather than a series of transactions. It is also the part a general insurance broker's finance function is least equipped to track, because it requires knowing, per policy, per year, for up to thirty years, whether a premium was paid.

Single premium commission is a third animal entirely. There is no renewal stream because there is no renewal premium, so the rate is a fraction of the regular premium first-year rate. Annuities sit here too. A firm that measures its life practice on revenue per policy rather than revenue per rupee of premium will systematically misread single premium business.

The commercial consequence is that two life policies with identical annual premium can be worth very different amounts to the broker depending on the premium paying term, and the client's interest and the broker's interest are not automatically aligned on that variable. That misalignment is the whole of the current regulatory debate compressed into one sentence.

A general insurance broker classifies by peril. Life classifies by how the policyholder's money is treated, and the three buckets carry different commission economics, different suitability risks, and different conversations with a client.

Participating (par) policies share in the insurer's surplus through bonuses that are declared, not guaranteed. The illustration a client sees is not a promise. Par products historically carry the fuller commission schedules and the longest premium paying terms, and they are where the gap between what a client believes they bought and what the contract says is widest.

Non-participating (non-par) products guarantee the benefit and share no surplus. Guaranteed return products and pure protection both sit here. Pure term is the cleanest product in the market to advise on and among the thinnest to earn on, a structural problem no amount of exhortation has ever solved. Guaranteed savings products are the opposite: attractive schedules, an interest-rate-sensitive proposition, and a client who often cannot state the internal rate of return they are getting.

Unit linked (ULIP) products place the investment risk on the policyholder and disclose their charges explicitly: premium allocation, policy administration, fund management, mortality. Because those charges are visible and structurally capped, ULIP commission is constrained by the arithmetic of the product rather than only by the insurer's appetite. A broker advising a corporate client's senior employees on ULIPs is, functionally, giving investment advice with an insurance wrapper.

The IRDAI (Insurance Products) Regulations, 2024 consolidated the product rulebook, repealing six earlier product regulations including the ULIP regulations of 2019, the non-linked products regulations of 2019, the health insurance regulations of 2016, and the acquisition of surrender and paid-up values regulations of 2015. A broker researching a life product's contractual mechanics against the 2015 or 2019 instruments is reading repealed text.

Policy term is how long the cover lasts. Premium paying term is how long the client pays for it. In non-life these are the same thing and nobody thinks about it. In life they detach, and the detachment is where both the commission and the mis-selling live.

A twenty-year endowment with a twenty-year premium paying term, a twenty-year term with a ten-year paying term, and a twenty-year term with a five-year paying term are three different products to a client and three different revenue profiles to a broker. Shorter paying terms concentrate the client's outlay and, on most schedules, reduce the first-year rate. Longer paying terms extend the renewal stream and are worth more to a distributor over the life of the contract, provided the policy survives.

Two questions settle whether the recommendation was suitable, and both should be on the file:

• Can this client actually sustain this premium for this many years? A premium the client can pay comfortably in year one and cannot pay in year four is not a sale, it is a deferred complaint.
• Does the paying term match the client's income horizon? A paying term that runs five years past a planned retirement is a design error visible at the point of sale.

Persistency is the proportion of policies that remain in force at a given duration, measured at the 13th month, the 25th, the 37th, the 61st. It is the single number that determines whether a life book is worth what the first-year commission suggested.

Arithmetically the point is simple. A book with strong 13th-month persistency converts first-year sales into a renewal annuity that compounds as the book ages. A book with weak persistency is a series of one-off first-year payments with a servicing cost attached and nothing behind it. Two brokers writing identical first-year premium can have life practices worth entirely different amounts five years later, and nothing in the first year's management accounts will show it.

What actually happens when a client stops paying depends on the product and the duration:

• Lapse. Early lapse on a regular premium policy before any guaranteed value has accrued generally leaves the client with nothing and the broker with a persistency problem and, on many schedules, a first-year commission that was contractually recoverable.
• Paid-up. Once the policy has run long enough to acquire value, stopping premiums may convert it to a reduced sum assured with no further premiums due. Cover survives, shrunken. The renewal stream stops.
• Surrender. The client exits for the surrender value. The contractual entitlement now sits within the IRDAI (Insurance Products) Regulations, 2024 after the repeal of the 2015 surrender and paid-up values regulations.
• Revival. A lapsed policy can usually be revived within a defined window on payment of arrears with interest and, depending on duration and product, evidence of health. Revival is the highest-return activity in a life practice and almost no general insurance broking firm has a process for it, because nothing in non-life resembles it.

A firm entering life needs three reports its current systems probably do not produce: persistency by cohort and by producer, a renewal premium due register with a follow-up trail, and a lapse register with revival eligibility windows. Build those before writing volume, not after.

Life distribution in India is dominated by the individual agency force and by bank distribution, not by broking. That is the plain structural fact a broking firm needs to absorb before it builds a business case, and it has three consequences.

First, insurer schedules are designed around the agency and bancassurance channels, because that is where the volume is. A broker negotiating a life schedule is negotiating inside a structure built for somebody else's economics.

Second, the servicing expectation is different. The tied agent visits, collects, reminds, and handles the claim in the family's living room. Persistency in the agency channel rests on that relationship. A broking firm that sells life with a corporate broking service model and no retail servicing capability will discover its persistency problem in year two, and its renewal income will reflect it.

Third, the reform debate is aimed at this structure, not at you. Reporting in early July 2026 described IRDAI as preparing an overhaul of commission rules to curb mis-selling, with a consultation paper expected by end-July 2026 according to Chairperson Ajay Seth. That reporting also noted that distributors can currently earn up to roughly 40 percent of premium on some life and health products, with a substantial portion paid at the time of sale.

That 40 percent figure is an observed market level reported in July 2026, not a regulatory cap. No product-wise cap has applied since the IRDAI (Payment of Commission) Regulations, 2023 removed them; commission is set by each insurer's board-approved policy inside the expense envelope.

As of this post's date the consultation paper had not been published. Everything below is at proposal stage, drawn from July 2026 reporting, and none of it is a rule. Read it as scenario planning, not as compliance preparation.

Four ideas were reported as being under consideration:

1. Staggered or trail commissions spread across the policy life rather than concentrated upfront. On a life book this is the most consequential of the four by a wide margin. It would convert the first-year cliff into something closer to an annuity, penalise volume without servicing, and reward the persistency discipline described above. It would also create a cash flow problem for any distributor that has capitalised its business on upfront receipts.
2. Effort-based differentiation, under which distributors who give personalised advice, help with documentation and support claims could earn more than those selling insurance as an add-on to another product, such as banks. A broking firm that can evidence advice and servicing is, in principle, on the favourable side of that line. Evidencing it is the work.
3. Product-wise caps differentiated by complexity and tenure, reintroducing in shaped form the caps removed in 2023.
4. Tighter remuneration disclosure to policyholders and to the regulator.

The rational preparation is not to guess the outcome. It is to ensure your life practice does not depend on upfront concentration continuing. Three moves are useful whatever the paper says: measure persistency by cohort and by producer, keep a contemporaneous servicing trail per policy rather than a reconstructed one, and model your life economics with a meaningful share of income moved from year one into years two through ten.

Separately, a June 2026 draft IRDAI (Insurance Intermediaries) (Amendment) Regulations proposes a separate financial statement schedule for intermediation revenue, audited filings to IRDAI by 30 September, and website publication. It remains a draft. If it is notified in something like its current form, the split of your revenue between first-year and renewal life commission becomes a published fact about your firm, and a book that is all first-year and no renewal will say something about your practice that you did not choose to say.