Life insurance mis-selling: Review benefit illustration, premium table

Beware of comparisons with FDs, and demand that all promises be put down in writing

Even as overall grievances against life insurers stayed flat, complaints linked to unfair business practices (UFBP) rose sharply. Grievances under UFBP increased from 23,335 in FY24 to 26,667 in FY25, an increase of 14.3 per cent, according to the Insurance Regulatory Development Authority of India’s (Irdai) annual report for 2024–25. The complaints underline the need for consumers to recognise mis-selling, protect themselves, and pursue redress when required.

 

The ‘guaranteed returns’ pitch

Certain life insurance products, especially endowment plans and unit-linked insurance plans (Ulips), are often marketed as fixed deposit (FD)-like or high guaranteed-return investments. Unlike FDs, which offer clear-cut interest rates and liquidity, life insurance involves long-term contracts with lock-ins, charges, and surrender penalties that can materially reduce returns.

 

“Mis-selling typically occurs when the protection element is downplayed, lock-in periods and exit losses are not explained, and only best-case return projections are highlighted. The risk of capital loss on early exit is ignored,” says Shilpa Arora, co-founder and chief operating officer, Insurance Samadhan.

 

Investors should remain sceptical of comparisons with FDs and ask what happens if premium payments stop early. “Always insist on written benefit illustrations, not verbal assurances, and read the benefit table carefully. Avoid sharing one-time passwords (OTPs) casually, pay attention to the insurer’s verification call, and flag any discrepancies. Remember that high guaranteed returns rarely come without risks,” says Arora.

 

Incomplete disclosure of policy details

Another common practice involves glossing over key policy details while focusing the sales pitch on benefits and returns.

 

“Many buyers don’t realise they are signing up for limited- or regular-pay premiums (thinking they are making one-time payments), or that maturity benefits change sharply if premiums stop early. Key exclusions, surrender penalties, and bonus assumptions are often glossed over verbally but disclosed technically in the complex policy document, which few read,” says Sanjeev Govila, certified financial planner and chief executive officer (CEO), Hum Fauji Initiatives, a financial advisory firm.

 

How can this trap be avoided? “Ignore the sales talk. Read just three pages: the benefit illustration, premium table, and surrender value clause. If the agent resists written explanations, that is a red flag,” says Govila.

 

Wrong products sold

Mis-selling also occurs when advisers push products that are easier or more lucrative to sell rather than those aligned with customer needs. Most working individuals require a pure term cover. But lower commissions on them often lead agents to recommend money-back policies or Ulips.

 

“Needs assessment is skipped: Income and liabilities are not evaluated, protection goals are replaced with return promises, and life cover remains inadequate. Customers are left with costly long-term savings products that fail to deliver meaningful financial protection,” says Arora.

 

High-pressure sales tactics

Some agents create artificial urgency by claiming premiums will rise imminently or by bundling insurance with loans, leaving little time for evaluation. “Assess your needs independently, ask detailed questions, insist on written promises, and be wary of pressure to sign immediately,” says Abhishek Kumar, Sebi-registered investment adviser and founder, SahajMoney.com.

 

Agents also misstate tax benefits and use unauthorised return projections. “Always verify all charges in writing, check tax implications independently, and insist on IRDAI-approved projection scenarios,” says Kumar.

 

Precautionary measures

Slow down the decision-making. “Insurance is a long-term contract and deserves a careful reading of the benefit illustration and exclusions. Treat any promise not documented in the policy as unverified,” says Ventakesh Naidu, CEO, BajajCapital Insurance Broking.

 

Policies can be cancelled within the free-look period of 15–30 days with minimal deductions. If that window has closed, act swiftly. “Gather all evidence—policy documents, sales material, emails, and agent communications—and file a written complaint with the insurer’s grievance officer. If unresolved within 30 days, escalate through Irdai’s Bima Bharosa portal to the insurance ombudsman, and, if needed, approach consumer courts,” says Kumar.

 

Finally, Naidu suggests viewing insurance as a protection tool rather than as a quick financial fix.

 

Points to remember

• Traditional endowment and money-back policies are often mis-sold using absolute maturity value instead of internal rate of return
• Low effective returns, typically around 4–5 per cent pre-tax, and long lock-in periods are hidden in fine print
• Ask what the post-tax IRR is if you exit at maturity
• If mis-sold, consider making policies paid-up or reassess whether continuing to pay premiums causes more harm than exiting

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  (The writer is a New Delhi-based independent journalist)