How a POSP Actually Gets Paid: The Engagement Contract, the Board-Approved Policy and the EOM Envelope

Start with the legal shape of the thing, because everything downstream is a consequence of it.

A point of sales person is remunerated by the entity that engaged them, under the contract of engagement. Not by the regulator's schedule. Not by a published rate for the channel. By a contract, with a counterparty, containing a term. You are not an independent commission earner facing the insurer, and no instrument grants you a claim on any insurer's money by virtue of being a POSP.

That is a different legal position from the one advisors imagine themselves to be in. A licensed intermediary has a registration in its own name and a relationship with insurers that exists independently of any single contract. A POSP has neither. You were engaged, trained, examined and appointed by one principal, and your remuneration is a clause in the document that engaged you.

So when someone expects a rule to point at, no rule exists to point at. What exists is a chain of three instruments stacked above your signature:

1. Your contract of engagement, which is the only one that names you.
2. The insurer's commission policy, approved by its board, which sets what the insurer will pay on a product and through a channel.
3. The expense envelope around the insurer's entire business, set by regulation, which bounds what all of it can add up to.

Each layer constrains the one below it. You can read exactly one of them. This post walks the other two, because understanding what is squeezing your contract is the difference between an advisor who negotiates and an advisor who is simply informed of things.

There is a reason the money reaches you through your principal rather than from the insurer's commission line directly, and it is not an accounting convenience. It is that the principal, not the POSP, carries the regulatory liability for your conduct.

The IRDAI master circular on the life side puts it plainly: the life insurer is responsible for the conduct of the POSP representing it, and misconduct by that POSP makes the insurer liable to penalty under Section 102 of the Insurance Act, 1938. Where an intermediary engages the POSP, the intermediary is the one responsible for the POSP's conduct and the one exposed to that penalty.

Read the two facts together and the design becomes coherent. The entity that answers for what you do is the entity that trains you, examines you, appoints you, codes you, supervises you and pays you. The entity that does not answer for you, the insurer at the far end of an intermediary chain, does not pay you either.

This is why the channel looks the way it does from the inside. Your principal reviews your proposals, restricts what you may say in an advertisement without its prior approval and the insurer's, and terminates you for conduct rather than escalating you to a regulator. It is buying down its own Section 102 exposure. The payout clause and the conduct clause in your appointment letter are the same bargain viewed from two ends.

It is also why a POSP is prohibited from paying any fee, commission or incentive, by whatever name called, to any person or entity for sale, introduction, lead generation, referral or finding of business. A sub-network under you would be people whose conduct your principal answers for and cannot see. The prohibition is not there to cap your income. It is there because the accountability chain has to end at a named, trained, coded human, and that human is you.

The same logic explains the enforcement pattern. The visible penalties in rebating and mis-selling matters land on insurers and intermediaries, because they carry responsibility for their distributors. An advisor's practical exposure is contractual, meaning termination, plus the Section 41 fine in principle. That is not a licence to be careless. It is a description of who gets the letter.

The chain has two shapes, and which one you are in changes who your counterparty is.

Engaged directly by an insurer. One relationship, one payer. The insurer appointed you and the insurer pays you, out of what it spends on distributing the products you place.

Engaged by an intermediary. A broker, corporate agent or web aggregator holds the licence and you are its POSP. Here the general market structure is that the insurer pays commission to the intermediary, and the intermediary then remunerates you under your contract. You are not a party to the insurer's commission arrangement.

Treat that second description as market structure rather than a rule you can cite, because the primary IRDAI texts frame the point as remuneration by the engaging entity rather than as an explicit routing instruction. It is how the market works and it is very likely how your money moves, but an advisor who quotes it as a regulation in a negotiation will be corrected by someone who has read the circular.

The commercial consequence holds either way. What the intermediary receives and what you receive are two numbers, and the gap between them is the intermediary's own economics: its licence, its systems, its compliance function, its people, its margin. You will not be shown that gap, and its existence is not a scandal. It is a reason to distrust any pitch that quotes an insurer's rate as though it were yours, and to compare principals only on what your contract commits them to.

This routing is also the reason your principal, and not the insurer, is the party to ask when a payout looks wrong. The insurer's obligation ran to the intermediary. Yours runs from it.

Above your contract sits a document you will never read.

The IRDAI (Payment of Commission) Regulations, 2023 removed product-wise commission caps from April 2023. Before April 2023, the regulator specified maximum commission by product category, and every rate card in the market was drawn against a published ceiling. That ceiling is gone. In its place, each insurer sets its own commission structure through a policy approved by its board, and that policy governs what the insurer will pay on a given product through a given channel.

The consequences for someone at the bottom of the chain are easy to miss:

Comparability broke. Under caps, rates were roughly similar market-wide because everyone drew against the same line. Now one insurer can pay materially differently from another on an identical product. If your principal places several insurers' POS products, the differences you notice are real rather than errors.

Nothing has to be gazetted for your economics to change. A board can revise its commission policy. No notification appears, no circular issues, no consultation runs. The rate simply changes, and you learn about it from your principal in a sentence.

The document is internal, permanently. It is not published, and you have no right to see it. You observe it only through its effects.

So when a rate moves, there are three candidate explanations, and they are not interchangeable: the insurer revised its policy, your principal revised its own share, or your contract changed. Asking which one moved is the single most useful question an advisor can put to a principal, and most never ask it, because they assume a regulator did it.

Above the insurer's commission policy sits the outer bound: a limit on the total the insurer may spend running its business at all.

The IRDAI (Expenses of Management, including Commission, of Insurers) Regulations, 2024, effective 1 April 2024 under reference F. No. IRDAI/Reg/2/196/2024, brought life, general and health insurers under a single instrument and set aggregate ceilings rather than product-level ones. The headline bounds are roughly 30 percent of gross written premium for general insurers and roughly 35 percent for standalone health insurers. A master circular followed in May 2024.

The word aggregate is the one to hold on to. Commission is not capped product by product any more. It is one component inside a total that must also carry salaries, offices, technology, marketing, and every other cost of running an insurer. Which produces the dynamic that advisors feel without being able to name:

• An insurer paying generously on a product is spending envelope it cannot spend elsewhere.
• An insurer running near its ceiling must find room somewhere, and distribution spend is the largest discretionary line available.
• Nobody announces any of this. Payouts across a whole product category simply tighten.

Stand back and the chain reads as one sentence. Your pay is set by a contract you signed, inside a policy you never see, inside an envelope you have no visibility of. Two of the three layers are invisible to you and both of them move. That is not an argument for fatalism. It is an argument for reading upstream changes as upstream, rather than as something done to you personally.

February 2026 is where the confusion in this area concentrates, so separate the two things carefully.

The Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 came into force on 5 February 2026. It restored IRDAI's statutory power to cap distributor commissions, which had been given up when product-wise caps were removed. It also brought in perpetual intermediary licences, composite licences and 100 percent foreign investment in intermediaries.

The Act imposes no cap of its own, and no cap has been made under it. The power exists on the statute book and has not been exercised. Anyone quoting you a commission cap number under the Sabka Bima Act is quoting a number that does not exist, and it is worth saying so plainly, because the claim circulates.

The perpetual licence change is the one worth a second thought if you are engaged by an intermediary, because it altered your principal's incentives in a way that reaches you. Registrations no longer come up for renewal. That gentle lever, the periodic look at whether an intermediary deserves to continue, is gone. Enforcement is now the only route by which a licence is lost. An intermediary that cannot lose its registration through non-renewal, but can lose it through a conduct finding, has more reason than before to be strict about the conduct of the people writing business under its name.

Which lands back on your appointment letter. The tightening you may notice in what you are permitted to say, how proposals are reviewed, and how quickly a conduct complaint gets you terminated is not your principal becoming difficult. It is a principal that now has only one way to lose everything, managing that way.

Everything in this section is expectation. Read it as weather, not as law.

IRDAI is preparing an overhaul of commission rules aimed at curbing mis-selling. Chairperson Ajay Seth indicated in early July 2026 that a consultation paper was expected by end-July 2026. As of the date of this post, that paper has not been published. Nothing about its contents can be known beyond what the July 2026 reporting says, and a paper that has not issued cannot be complied with.

Four ideas were reported to be under consideration. All four are proposals:

1. Staggered or trail commissions spread over the life of the policy rather than concentrated at sale.
2. Effort-based remuneration, under which distributors who give personalised advice, help with documentation and support claims could earn more than those, such as banks, that sell insurance as an add-on.
3. Product-wise caps differentiated by complexity and tenure.
4. Tighter disclosure of remuneration to policyholders and to the regulator.

The number driving this is worth stating precisely. The July 2026 reporting says distributors can currently earn up to roughly 40 percent of premium on some life and health products, much of it at the point of sale. That is an observed market level, not a regulatory cap, it describes certain products rather than the market, and it describes what enters a distribution channel rather than what reaches a person at the end of one. The regulator's stated concern is that upfront-heavy structures reward volume over suitability and produce churn that does not benefit policyholders.

Notice the shape of the second idea if you are one person serving households rather than a counter attaching cover to a loan. A regulator willing to pay more for advice, paperwork and claims support is describing a servicing advisor and distinguishing that advisor from a distribution surface. It is a proposal and not a promise. But it is the first serious signal that the thing you do that a bank branch cannot do might one day be the thing that is paid for, and evidence of servicing is either a record you kept or a claim you cannot support.

Three layers, one of which is yours. The response is not to worry about the other two. It is to be exact about the one that carries your name.

Read the appointment letter as an economic document. It defines the basis of payment and which premium it reads against, the rate per product, the payout cycle, what is conditional on volume or campaigns, what is recovered on cancellation or free-look return, and whether renewals on business you sourced keep paying you after the engagement ends. That last clause is the most valuable one in the document and the one advisors read last, because it is the only clause that decides whether you are building a book or renting one.

Then accept what the chain implies. Your contract is negotiable at the margins, at joining and at a rate change, and only if you can be specific. The insurer's board-approved policy is not negotiable by you at all, and the expense envelope is not negotiable by anyone, including your insurer. An advisor who understands that hierarchy wastes less energy on the wrong counterparty.

And hold on to the point underneath all of it. The reason the money reaches you through a principal is the same reason the answerability does. You are paid by the entity that has to answer for you. That is the deal the POSP channel makes: a very light way in, a very short product list, one principal at a time, and a payout that is a term in someone else's contract rather than a right of your own. It is a workable deal for a person building a household book over a decade. It is a poor deal for anyone who believed they were joining as an independent.