IRDAI's New Rules in 2026 Are Changing How Term Insurance Is Sold Are You Getting a Fair Deal?
IRDAI’s New Rules in 2026 Are Changing How Term Insurance Is Sold
Are You Getting a Fair Deal?
India’s insurance regulator is overhauling everything — from agent commissions to mis-selling checks. Here’s what every salaried Indian, business owner, and family breadwinner needs to know before buying or renewing a term plan.
Section 01 Why IRDAI Is Moving Fast — And Why It Matters Now
India has a paradox at the heart of its insurance market. With over 290 million policyholders and a life insurance sector projected to grow at 14-15% annually over the next five years, it is simultaneously one of the world’s fastest-growing insurance markets — and one of the most mis-sold.
In FY25, life insurers paid a staggering ₹60,800 crore in agent and broker commissions — an 18% jump from the previous year — even as overall premium growth was a more modest 6.7%. To put that in stark terms: commissions alone consumed nearly 6.9% of all premiums collected. That cost, ultimately, gets passed back to you as the policyholder through higher premiums or lower returns.
Finance Minister Nirmala Sitharaman and RBI Governor Sanjay Malhotra have both publicly flagged insurance mis-selling as a growing threat to consumer trust, particularly in the bancassurance channel — where banks bundle insurance policies with home loans and savings products, often without fully explaining what you’re signing up for.
“Selling correctly is an imperative for every salesperson, distributor and insurance company. High acquisition costs have locked the sector into a low-penetration, high-cost cycle.”
Deepak Sood, Member (Non-Life), IRDAI — InsureInd Conference, February 2026
In response, IRDAI has launched a sweeping multi-front regulatory push. This is not tinkering at the edges — it is a fundamental redesign of how insurance is distributed and sold in India.
Section 02 The Sabka Bima Sabki Raksha Act — The Law Behind the Change
The single biggest catalyst for all the changes you are about to read is the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025. Passed in Parliament in 2025, this landmark legislation handed IRDAI significantly expanded powers over how insurance is sold, priced, and governed.
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Commission Caps: IRDAI can now set enforceable ceilings on commissions paid to agents, brokers, bancassurance partners, and digital aggregators — not just product-level caps but total compensation structures.
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Perpetual Registrations: The earlier 3-year renewal cycle for all insurance intermediaries has been abolished (effective February 2026), replaced by perpetual licences subject to annual fees and compliance — reducing red tape while strengthening ongoing accountability.
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Suitability Norms: Agents and intermediaries must now formally assess whether a policy matches the customer’s income, liabilities, and financial capacity before recommending it. “Need analysis” is no longer optional — it is a regulatory requirement.
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Conflict of Interest Rules: Particularly in bancassurance, where banks earn commissions for selling insurance alongside loans, new disclosures mandate that customers are told exactly how much the bank is earning from the transaction.
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Stronger Penalties: Mis-selling can now attract fines, licence suspensions, and cancellations — consequences that were previously difficult to enforce. IRDAI has already issued show-cause notices to 23 insurers for exceeding expense management norms.
Section 03 How Term Insurance Is Actually Sold — And Where the Problems Have Been
Before understanding what is changing, it helps to understand what was broken. Term insurance — a pure protection plan that pays your nominee a lump sum if you die during the policy period — is the most straightforward, most affordable form of life cover in existence. A ₹1 crore cover can cost a healthy 30-year-old as little as ₹8,000-₹10,000 per year.
So why do so many Indians still end up underinsured, over-paying, or buying the wrong product entirely?
The Mis-Selling Playbook
Here are the documented patterns that IRDAI’s own FY25 annual report flagged as systemic problems in the industry:
- Presenting a ULIP (Unit Linked Insurance Plan) as a “better term plan” to earn higher commissions, without explaining that a large portion of early premiums go toward charges rather than cover.
- Banks bundling credit-linked term insurance with home or personal loans, often adding the premium to the loan amount without adequate explanation or consent.
- Agents recommending a lower sum assured (say ₹50 lakh instead of ₹1 crore) to make the policy seem “affordable” — without explaining that the cover is inadequate for your income and liabilities.
- Online aggregators ranking policies by commission rather than consumer value, manipulating search results that appear neutral.
- Obscuring exclusion clauses for pre-existing conditions, occupation-based risks, or suicide during the first year of the policy.
The numbers back up the problem. Total Unfair Business Practice (UFBP) grievances against life insurers rose from 23,335 in FY24 to 26,667 in FY25 — a 14.2% increase — even as the overall number of complaints stayed broadly flat. The share of mis-selling-related complaints has now crossed 22% of all grievances. IRDAI has called this “a significant concern” and directed insurers to conduct root cause analysis.
Section 04 The Commission Crackdown — What It Means for Premiums
This is the reform that could have the most direct impact on your wallet. IRDAI is developing a framework to cap commissions across all distribution channels — agents, brokers, corporate agents, web aggregators, and banks. Draft regulations are expected to come into effect around April 2026.
Under the current Expenses of Management (EOM) Regulations, 2024, insurers are required to operate within specified expense limits. But by late FY25, IRDAI identified that several insurers had breached these limits and issued show-cause notices to 23 companies. The message is clear: the era of uncapped, opaque distributor incentives is ending.
| Distribution Channel | Current Commission Range | Direction Under New Rules | Impact on You |
|---|---|---|---|
| Individual Agents | 25–35% (Year 1 premium) | Capping likely | Potentially lower premiums |
| Bancassurance (Banks) | Up to 30-40% | Mandatory disclosure | Know what your bank earns |
| Online Aggregators | Variable, undisclosed | Transparency norms | More neutral comparisons |
| Direct / Online Insurer | Zero commission | No change | Cheapest option remains cheapest |
The mutual fund industry offers a preview of where this is headed. After SEBI introduced commission transparency rules in the mid-2010s, direct mutual fund plans (without distributor commissions) became significantly cheaper — some categories saw annual cost reductions of 0.5-1.5%. IRDAI is aiming for a similar outcome in insurance.
Section 05 Bima Sugam — The Digital Marketplace That Changes Everything
Bima Sugam, launched in 2025 and expected to become fully operational through 2026, is India’s insurance equivalent of the UPI revolution. It is a government-backed, IRDAI-supervised unified digital platform that allows you to:
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Compare all term plans in real time — across all IRDAI-registered insurers, with standardised data fields so comparisons are actually like-for-like.
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Buy, port, and manage policies digitally with e-KYC, e-nomination, and e-policy issuance — no more dependence on an agent to make basic changes.
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File and track claims in a single unified interface, with mandatory timeline disclosures from insurers at each stage.
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Access your complete policy repository — all your policies in one place, including those you may have forgotten about or not realised were still active.
What Bima Sugam Means for Term Insurance Buyers
For the first time, a salaried professional in Jaipur or a business owner in Coimbatore will have access to the same quality of term insurance information as a financial adviser in Mumbai. The information asymmetry that enabled mis-selling for decades is being systematically eliminated.
Early trials suggest premium transparency alone is making insurers more competitive on pricing for term plans — a direct benefit that flows to the consumer.
Section 06 The GST Exemption — An Underreported Windfall for Policyholders
One of the most meaningful — and least publicised — changes to affect term insurance buyers in 2025-26 is the GST exemption on individual life insurance premiums, effective September 2025. Previously, an 18% GST was levied on term insurance premiums, adding a significant cost burden on every policyholder.
On a ₹1 crore term plan with an annual premium of ₹10,000, this meant ₹1,800 per year — or ₹36,000 over a 20-year policy — was simply going to taxes. That money is now back in your hands.
Private life insurers reported a 21% year-on-year surge in new business in October-November 2025 following this exemption — evidence that premium sensitivity is very real for Indian consumers. If you were on the fence about buying a term plan, this structural tailwind makes now an objectively better time.
Section 07 How to Know If You Are Getting a Fair Deal — A Practical Checklist
Given all these changes, what should a smart, informed insurance buyer actually do? Here is a seven-point checklist you can apply today — whether you are buying new, reviewing existing cover, or about to renew.
- Calculate your actual cover need first. The industry standard is 10-15x your annual income, minus existing assets, plus outstanding liabilities. If your agent never ran this calculation with you, that is a red flag.
- Compare on Bima Sugam or at least three insurers directly. Never accept the first quote. For the same ₹1 crore cover, premium differences of 20-30% between comparable insurers are common.
- Check the Claim Settlement Ratio (CSR). Any insurer above 98% CSR consistently is excellent. Axis Max Life (99.72%), HDFC Life, and LIC all score well. Verify using IRDAI’s own published annual data, not the insurer’s website alone.
- Ask your intermediary to disclose their commission. Under the new rules, this disclosure is either mandatory or imminent. An adviser who refuses to tell you what they earn from your policy is not aligned with your interests.
- Read the exclusions before you sign. Specifically: occupation hazards, adventure sports, pre-existing conditions, and suicide clauses. The free-look period of 30 days exists precisely for this review — use it.
- Review your cover annually. As your income grows, your debt increases (home loan, business loan), and your family expands, your insurance need changes. A ₹50 lakh policy that was adequate in 2018 is almost certainly not adequate in 2026.
- Know your grievance rights. If your claim is rejected unfairly or your complaint is unresolved within 2 weeks, escalate to IRDAI’s Bima Bharosa portal at bimabharosa.irdai.gov.in, and then to the Insurance Ombudsman if needed — both are free.
Section 08 Frequently Asked Questions
Final Word The Winds Have Shifted — Now Act on It
India’s term insurance market is entering a genuinely new era. The Sabka Bima Sabki Raksha Act, the GST exemption, the commission crackdown, the Bima Sugam rollout, and the suitability norms are not isolated events — they are a coordinated regulatory response to decades of consumer harm caused by opacity and incentive misalignment in how insurance was sold.
For the first time, the regulatory wind is firmly at the policyholder’s back. But regulations can only create the conditions for fairness — they cannot make your decisions for you. Use the free-look period. Demand commission disclosures. Check your Claim Settlement Ratio. Review your sum assured every year. File grievances when you are wronged.
The system is changing. Make sure you change with it.
