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India InsurTech Thought Leadership

Mis-selling in Life Insurance

Mis-selling in Life Insurance

Stating that insurance policies are prone to mis-sell is an unfortunate fact. Mis-selling in Insurance is a phenomenon where the customer is sold an insurance policy on a false promise. It could be that the information is represented inaccurately to the customer. The cascading effect of this is that when the customer applies for the claim, the claim gets rejected. The customer then starts running from pillar to post but all that they get to hear is various technical jargons and precautions that they should have taken. The Regulator is doing a lot on this front but in a country like India where financial literacy is already low, this is a menace that is on the rise. We, at Insurance Samadhan, get a lot of complaint statements where the customer says that they were sold policies bundled with loans, sold with FDs, sold as single premium plans. We will discuss all of these in detail in this article. The whole ecosystem isn’t bad, the regulator with the help of Insurance companies is making every bit of an effort to control this. There are awareness campaigns but mostly it’s the customer who ends up suffering. Let us talk in detail about the most common types of insurance mis-selling.

Common Insurance Mis-Selling Types

  1. Sold as a single premium policy/FD in the bank- Customers are attracted into buying insurance policies on the pretence that it’s a single premium plan or FD. The policy holder realizes after a year that it was a case of miss selling when they receive a renewal premium notice. It turns out to be a regular premium paying policy and not a single premium or FD.

  2. The policy is sold with a commitment of interest-free Loan- This is another common type of mis-selling where telecallers offer an attractive commitment of interest-free loan on the pretext of buying or promoting insurance policies. Unaware customers often fall for these promises and end up buying Insurance policies and never get any loan.

  3. Bonuses in a lapsed policy will be paid in the new policy- In this scenario, the telecaller poses as an authorised employee representing various institutions. He makes an offer that the customer has a lapsed policy that has unpaid money plus bonuses. Convinced by this piece of information and in greed of having some money, the customer is advised to buy a fresh policy on the pretext that the old money will be transferred in the new policy.

  4. Free health insurance offers with a life policy- This is a very common way of attracting customers during the pandemic. The seller promises free health insurance along with the purchase of a life policy. However, there are no such deals or offers made by any insurance company. Customers are often lured into such attractive offers and end up buying policies that they do not need.

  5. Regular income from the policy- Another type of scheme is offering monthly income on the pretext of buying insurance policies. The seller promises to generate a monthly income for policyholders on the condition that they buy a policy. They are promised that every month there would be a constant income that will be coming to them. This is another illegitimate manner of trapping customers into insurance mis-selling.

  6. Job offers- Another too-good to be true offer is the job opportunity on the pretext of buying insurance policies. Such types of insurance mis-selling are more common in rural or semi-rural areas where by taking advantage of the low-employment rate, sellers trap customers into such deals.

  7. Overdraft facility with investment in insurance policy-This type of mis-selling is mostly seen in banks where the seller sells a One-time payment insurance policy to avail an overdraft facility whereas in reality there are no such products available.

  8. Free Gold coin on purchase of the policy- To attract customers, a promise of a free gold coin is given on the purchase of an insurance policy. Many people are lured into such a trap however these promises are never delivered upon.

  9. Renewal premium is used to buy a new policy- This is another form of mis-selling where the policyholder doesn’t realise that their renewal premium is being used to issue a new policy. The existing policy gets lapsed and the customer is trapped into the new unwanted policy. The customer ends up buying a new policy whereas he is thinking that he is paying a renewal premium.

Now that we know some common insurance mis-selling types, let’s look into the factors leading to mis-selling.

Factors leading to Mis-Selling

  1. Poor Financial literacy- There is a large sector of people who do not engage in basic research and are not financially literate enough to understand the complex insurance structure.

  2. Not reading the document properly- Nobody has the time to read a hundred terms and conditions and even if they do read them, it is very difficult to comprehend the complex nature of insurance documents.

  3. Breach of trust – Insurance in India is still seen as an investment. People like to buy from trusted people and therefore take their word. The seller on occasions doesn’t even know the complete policy itself and due to pressure of completing targets and making incentives, ends up selling the wrong products.

How does Insurance Samadhan help?

  1. Our tech platform uses algorithm-based parameters to filter out genuine complaints and helps aggrieved policyholders in representing their complaints in a factual manner. This enables the insurance companies to make an informed decision.

  2. Our Platform is fed with various parameters and points which assist the aggrieved customer in drafting the complaint.

  3. Once the complaint is drafted the platform guides the customer to follow the laid-out process of IRDAI.

  4. We have solved over 14000 claims and complaints to date.

  5. We deal in every type of Insurance be it health, life or general.

  6. We run an educational series on our YouTube channel, social media platforms, in partnerships with other Insurance ecosystem stakeholders to increase the awareness of the end-user about Insurance.

Author: Shilpa Arora, Co-Founder & COO, Insurance Samadhan

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of IIA and IIA does not assume any responsibility or liability for the same.

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