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by Anand Prakash Gupta
Insurance is meant to protect families, not confuse them or drain their savings. Yet insurance mis-selling in India has quietly become one of the biggest financial pain points for everyday customers. From first-time earners to retired senior citizens, thousands of people are pushed into buying insurance policies that do not suit their needs, risk profile, or financial goals.
What makes the problem worse is that mis-selling often comes from trusted sources such as banks, relationship managers, and authorised agents. By the time customers realise something is wrong, the free look period has passed and the damage is already done.
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Insurance mis-selling happens when a policy is sold using false promises, incomplete information or pressure tactics. In many cases, customers are made to believe the policy offers guaranteed returns is mandatory for a loan or works like a fixed deposit. The reality is often very different.
Common examples of insurance mis-selling include selling long-term savings plans to elderly customers, pushing high-premium policies without explaining lock-in periods, hiding charges and commissions or switching existing policies unnecessarily.
The rise in insurance mis-selling is not accidental. It is largely driven by aggressive sales targets and incentive structures.
Banks and agents earn high commissions in the first year of selling certain policies. This pushes them to prioritise products that benefit them financially rather than what is suitable for the customer. Year-end pressure to meet targets further fuels unethical sales behaviour.
Another major reason is blind trust. Customers often assume that advice coming from their bank is safe and verified. Many do not read policy documents carefully or feel hesitant to question authority figures like relationship managers. The misuse of personal data has also made mis-selling easier. Customers receive highly personalised calls where agents already know their age, income range or recent financial activity, making the sales pitch feel legitimat.
One of the most reported tactics is linking insurance to loan approval. Customers are told that buying a policy is compulsory for getting a home loan, personal loan or business loan. This is false. Insurance cannot be forced as a condition for loan sanction.
Another widespread tactic is promising guaranteed returns. Many policies are sold as safe investment tools with assured profits. In reality, most insurance products are meant for protection, not wealth creation and returns are often market-linked or long-term.
Policy switching is another trap. Customers are persuaded to surrender existing policies and buy new ones with claims of better benefits. This usually results in financial loss due to surrender charges and reset of lock-in periods.
Selling unsuitable products to senior citizens is also common. Elderly customers are pushed into long-term policies that mature after 10 or 15 years, even when liquidity and short-term planning should be the priority.
Insurance mis-selling does not just cause financial loss. It creates stress, distrust and long-term insecurity. Many customers realise years later that their policy does not offer the coverage they believed it did. Others discover that surrendering the policy will result in heavy losses.
For retirees and middle-class families, this can mean blocked savings, missed financial goals, and emotional distress. Unfortunately, many victims never file complaints because they do not know where to go or assume nothing will change.
Regulatory data shows a steady rise in complaints related to mis-selling, making it one of the top reasons for grievances in the life insurance sector. While redressal systems exist, awareness remains low.
Authorities have repeatedly warned insurers and banks against unethical sales practices. However, enforcement remains a challenge due to the scale of distribution networks and complex commission structures.
The first rule is simple. Never rush into buying an insurance policy. If someone creates urgency or pressure, pause immediately.
Always ask for written details and brochures. Do not rely on verbal assurances. If a return or benefit is promised, it must be clearly mentioned in the policy document.
Never sign blank forms or share OTPs casually. Read the policy wording, especially exclusions, lock-in periods and surrender clauses.
Use the free look period wisely. Most insurance policies offer a window to cancel if you are not satisfied. Review everything calmly during this time.
If you suspect mis-selling, raise a complaint with the insurer first. If unresolved, escalate through official grievance platforms or the insurance ombudsman.
Insurance is a powerful financial tool when chosen correctly. But when sold irresponsibly, it becomes a burden that follows customers for years. Insurance mis-selling in India thrives on a lack of awareness, blind trust and aggressive selling.
The solution lies in informed decision-making. Ask questions. Take time. Read the fine print. A good insurance policy should bring peace of mind, not regret.
Being cautious today can save years of financial stress tomorrow.