Insurance agent misselling in Nepal: 5 questions to ask before you sign

A relative in our family was sold a 20-year endowment plan in 2018. The agent was a neighbour's nephew. The premium was Rs 80,000/year, on a household income of about Rs 35,000/month at the time, which meant the policy ate roughly two and a half months of take-home every year. By 2024 they had stopped paying. The surrender value worked out to around 58% of what they had put in. The nephew had moved to a different branch by then, and the policy had been their first and only life insurance product.

The story is unfortunately ordinary. Industry-wide policy surrenders in Nepal hit Rs 14.50 billion in FY 2023/24, up 8.67% year on year, with another Rs 5.69 billion surrendered in just the first five months of FY 2025/26 according to NIA data carried by Insurance Khabar. Unpaid premium balances are approaching Rs 37 billion. Most of those policies were sold by people who needed the commission more than the buyer needed the product.

Why the agent's incentives diverge from yours

Insurance Regulation 2081, gazetted in Falgun 2081, sets the commission ceilings every NIA-licensed agent operates under. The table that matters:

Product	Year 1	Year 2	Years 3-10
Endowment / whole life, ≥20 years	25%	25%	5%
Endowment / whole life, 15-19 years	15%	15%	5%
Endowment / whole life, 10-14 years	15%	15%	5%
Term life	10%	—	—
Single premium	6%	—	—

On a Rs 80,000/year endowment, the agent earns Rs 20,000 in Year 1 alone. On an equivalent-cover term policy at perhaps Rs 8,000/year, they earn Rs 800 once. That's a 25× gap in first-year takings on the same household's protection need, and the gap compounds across the eight-year trail commission on the endowment.

You are not arguing with a bad person. You are arguing with a payout schedule. The five questions below make that schedule visible.

The five questions

1. "What's your commission on Year 1, Year 2, and Year 3 of this policy?"

This is the first question because it's the one most agents will refuse to answer cleanly. Nothing in Insurance Regulation 2081 forbids disclosure; nothing requires it either. The discomfort you'll see when you ask is itself the signal. A few responses to watch for:

• "It depends on the company." It doesn't. The ceilings are gazetted. The variation is within those caps.
• "That's not a concern, it's already priced in." Priced in or not, it's part of why this product was recommended to you.
• "Around 5%." Compare against the table above. Agents rarely lie outright; they round generously when they have to.

An honest agent will quote the band their company actually pays them on the specific policy. That's the agent worth continuing the conversation with.

2. "What's the surrender value at Year 2, Year 5, and Year 10, in writing?"

Most Nepali endowment policies pay zero or near-zero surrender value in the first two years. After Year 3 a Guaranteed Surrender Value kicks in, usually 30% of premiums paid in the first three years and a higher percentage thereafter, plus a share of any accrued non-guaranteed bonus. The actual numbers vary by insurer.

Asking for the surrender table in writing matters because the verbal pitch and the policy document often disagree. The pitch describes the if-you-stay-the-full-term scenario. The document describes what happens when life intervenes. Industry surrender data says roughly one Rs 14.50 billion worth of policies came out the wrong end of that gap in FY 2023/24 alone. Plan for the document version, not the pitch version.

3. "What term policy gives me the same death benefit, and what's the price difference?"

The agent will usually pivot back to "savings" once you ask this. Hold the question. You're not asking which is better. You're asking for the apples-to-apples comparison so you can decide.

A common Kathmandu example: a 30-year-old non-smoker buying Rs 50 lakh of cover sees term premiums in the Rs 8,000-15,000/year range from the 14 NIA-licensed life insurers. The same death benefit packaged as a 20-year endowment usually runs Rs 75,000-1,20,000/year. The Rs 60,000-1,00,000 annual difference is the "savings" part of the endowment. Where the misselling lives is the implicit claim that the savings inside the endowment will beat what you'd earn by separately investing that same Rs 60,000-1,00,000 in an FD or mutual fund SIP over 20 years. Run the math once and the answer is almost always no.

4. "What's the guaranteed return on this policy, before any projected bonus?"

Nepali endowment policies usually pitch a return number around 6-7% per year. That number has two parts:

• A guaranteed sum assured plus any guaranteed additions. The insurer is contractually bound to pay this if you complete the term.
• A projected bonus declared annually by the insurer's board. It varies year to year and depends on investment performance.

When you ask for the guaranteed return alone, you'll usually see something in the 3-4% range. The remaining yield is the bonus, which is conditional on the insurer's investment performance and on you continuing to pay premiums for two decades. That's not necessarily a bad bet, but it is a bet, and the brochure rarely says so. NIA does not require insurers to label projected returns as non-guaranteed in marketing material.

5. "What's the IRR after all charges, using your own projected assumptions?"

This is the question most agents have never been asked. Take the maturity value they're quoting, the total premiums you'll pay, and the schedule of when each premium is paid. Compute the internal rate of return. Most Nepali endowment policies, including bonus, return an IRR in the 4.5-5.5% range.

Three reference points to hold that number against:

• 9-10% FD rates available at most Nepali commercial banks for 5-year tenors.
• The historical NEPSE vs SIP vs FD comparison over a 25-year window.
• Inflation: 3.75% headline and 6.03% non-food and services for FY 2081/82, which is the threshold a real return has to clear before it counts as earning anything.

An IRR of 4.5% on a 20-year lock-in, when the death benefit could be bought separately for one-tenth the premium, is what misselling actually looks like once you do the math.

The health insurance variant

Health insurance misselling has a different shape. The tactics are over-selling sum insured and under-disclosing exclusions, with commission asymmetry playing a smaller role. Three questions matter for a private floater added on top of the NHIP base:

• "What's the room-rent sub-limit?" Many Nepali health policies cap room rent at 1% of sum insured per day. A Rs 5 lakh policy caps your private room at Rs 5,000/night, which sits below the single-room rate at most Kathmandu private hospitals. The sub-limit reduces that bill, and via the proportionate clause scales every other charge on the same admission down by the same ratio.
• "What's the cashless hospital network?" Some insurers operate cashless only at a small set of network hospitals; outside the network you pay out of pocket and reimburse later. Ask for the list of Kathmandu hospitals that are cashless on the specific plan.
• "What's the waiting period for pre-existing conditions?" Standard is 2-4 years in Nepal. The agent should be able to name the number for the specific plan, not quote the industry default.

The NHIP base plan covers Rs 1,00,000/family/year for Rs 3,500 in annual premium for a family of 5 (Rs 700/extra member). ADB's 2024 study found NHIP renewal rates of only around 54%, with under-utilisation of services and inadequate benefits the top dropout reasons. NHIP plus a private top-up is a more honest stack than NHIP alone, but only if the top-up isn't sub-limited into uselessness.

The tax-deduction myth

Agents often justify endowment plans on tax savings. The framing here is usually wrong by omission.

The life-insurance premium deduction (Schedule 1, Income Tax Act 2058) is Rs 40,000 per fiscal year, applicable to term and endowment policies identically, capped at premium paid. A Rs 8,000/year term policy gets up to Rs 8,000 of deduction. A Rs 40,000/year endowment gets up to Rs 40,000. The same Rs 40,000 routed into CIT contributions gets a parallel deduction inside the combined Rs 3,00,000 retirement cap, with a substantially higher long-term return.

If you're in the 30% bracket, the deduction on a Rs 40,000 endowment saves you Rs 12,000 of tax per year. Real money. It's just not a reason to choose endowment over a Rs 8,000 term policy (which saves you Rs 2,400 of tax at the same bracket) plus Rs 32,000/year of separately invested savings.

What to do if you've already been mis-sold

The Nepali grievance mechanism is thinner than a buyer would hope, and there's no published online complaints portal as of 2026. Three steps that work:

1. Run the honest surrender math first. Sometimes the rational move is to keep paying for an overpriced policy because the surrender loss now is worse than the premium-for-cover ratio going forward. Sometimes it's the opposite. Compute the IRR on both paths before doing anything irreversible.
2. File a written complaint with NIA at Kupondole, Lalitpur (phone +977-1-5450796). NIA registered 244 complaints in FY 2023/24, up 57% from the prior year. Most settle quietly once the agent's company sees a paper trail. Insurance Regulation 2081 explicitly empowers NIA to cancel agent licences for misleading information about a customer's health, income source, or age during the sale.
3. Pursue legal remedy under the Consumer Protection Act 2075 if there's documented disagreement between the verbal pitch and the policy document. Witnesses, written promises, and copies of brochures help. NIA does not publish an average resolution time, so plan for 6-12 months of follow-up either way.

What you actually need to know

Three lines:

1. The commission asymmetry explains the misselling. Endowment pays the agent 25× more in Year 1 than equivalent-cover term, and no agent disclosure rule exists. The first question on the list is the only one most agents will visibly squirm at.
2. The tax-deduction pitch is misleading by omission. Term and endowment get the same Rs 40,000 deduction at the same bracket. The deduction is not a reason to pay ten times the premium for the same death benefit.
3. Surrender data tells the rest of the story. Rs 14.50 billion of policies surrendered in FY 2023/24, growing 8.67% YoY. Most of those were sold to people for whom term plus an FD or SIP would have been the right answer from the start.

This post is part of the Nepal Money Basics guide — the Protect what you've saved section.

Have a specific policy you're being pitched, or already hold and want to evaluate? Email parjanya57@gmail.com, happy to run the IRR with you.