Hereditary commission means commissions due to a deceased life insurance agent that’s inherited by his nominees. To encourage and protect life insurance agents, the Insurance Act of 1938 specified rules under which commissions were to be paid to life insurance agents after they had served a certain number of years with an insurer.

The same rules applied even on death of the agent, and the nominee became entitled to the hereditary commissions (though they don’t automatically become the agent or service the policyholder). The policyholder—called ‘orphaned policyholder’—is then serviced by the insurer directly or another agent is assigned. The rules have relaxed now and the insurer can choose to pay or not pay hereditary commissions to the nominees.