Reading Between The Lines: Were You Mis-Sold A Policy? IRDAI's Proposed Checklist Shows You How To Tell

You go to your bank to renew a fixed deposit. Your relationship manager suggests a better idea -- a plan that would "give you better returns than an FD and cover your life". You like the idea and sign on. Two years later, you want the money to cover an emergency. The bank tells you what you will get back, and it is not pretty.

Is this a case of mis-selling? A new paper by the IRDAI can help you answer it.

The regulator's consultation paper on insurance distribution, released on September 23, lists 12 practices it proposes to treat as mis-selling of life insurance. The list is still a proposal. But it shows what the regulator qualifies as a bad sale.

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How to tell if your policy was mis-sold to you?

I have turned IRDAI's examples into questions. If your answer to any of them is yes, the policy needs a relook.

Did you think the payment for the policy was a one-time thing?

Selling a regular-premium policy as a single-premium one is the first item on IRDAI's list. If you believed you were making a one-time investment and were surprised when you got a renewal notice, then you were potentially mis-sold a policy.

Did the seller tell you it was as good as an FD, or better?

Selling insurance as a "fixed-income deposit" or selling a guaranteed return savings plan in place of a bank deposit when its returns are lower or comparable would qualify as mis-selling. A life insurance savings plan is a combination of life cover and investment and not a deposit.

Were you promised returns the policy does not guarantee?

Promising "assured returns" on a participating plan or a ULIP makes it to the list. Go over the benefit illustration the agent shares with you. Anything not marked as guaranteed is not guaranteed.

Did anyone tell you what happens if you stop paying?

Selling a regular-premium plan without explaining the cost of stopping is another example. It is often the costliest surprise. According to IRDAI's numbers, a policyholder who surrenders at the end of the first year gets back only between 31% and 64% of the premium paid.

Can you afford to keep paying this every year?

IRDAI says someone without a steady income should not normally be sold a regular-premium policy, and nobody should be sold policies that require premiums beyond their paying capacity.

Was the plan right for your age and your family?

Selling life cover to someone who is past working age and has no dependants is another important one. So is selling a ULIP to someone who is risk-averse or past working age without explaining the charges and the risk to their capital. For someone close to retirement, IRDAI suggests an annuity, which pays regular income for life, as long as the seller explains the product and shows how its returns compare with an FD.

Were you talked out of an old policy?

Persuading you to cancel an existing policy for a new one on a misleading promise of better returns is also on the list. Early exits are costly, so a switch usually needs a compelling reason.

Did you put a large lump sum into something you cannot easily get out of?

IRDAI lists selling of high-value single-premium plans that offer little liquidity and little cover.

Two borderline items

Two examples on IRDAI's list may catch genuine cases.

It says a term plan taken on the "life of a dependent or a non-earning relative" could be seen as mis-selling. That could include a husband buying insurance for his wife who runs the home. Her work has real financial value to the family, and insurers sell such cover today. The final rules should make room for these exceptions.

It treats selling life insurance "for inheritance planning" as mis-selling. The worry is probably older buyers being mis-sold costly plans. But protecting the people who inherit from you is part of what life cover is for. The wording needs to be clear.

Five questions to ask before you sign up

Ask these before you sign anything.

1. Is this insurance, an investment, or both? If both, how much of my premium pays for cover, how much is invested?

2. What exactly is guaranteed? Get it in writing.

3. What will I get back if I stop paying after one year (surrender value)? And each year after that? Get this in writing, too.

4. How much do you earn if I buy this? An agent's code of conduct requires them to share their commission rates if you ask.

5. Can I take the documents home and read them first?

Sellers are paid far more at the start of a policy than later. IRDAI's figures show that on non-participating savings plans sold through banks and other corporate agents, commission and rewards averaged between 29% and 60% of the first-year premium.

If you already have a policy that you believe you were mis-sold

If you bought the policy in the last 30 days, you can return it under the free-look period. You will get your premium back, minus a deduction for the days you were covered, stamp duty and any medical tests.

If it is older, complain to the insurer in writing, and keep a copy. If you get no reply within 30 days, or the reply does not satisfy you, you can take it to the Insurance Ombudsman within a year. You can also register a complaint on IRDAI's Bima Bharosa portal. According to IRDAI's paper, 63% of all complaints disposed of on Bima Bharosa in FY26 were settled in the policyholder's favour, and so were 75% of cases disposed of by the Ombudsman.

If a bank sold it to you, there is more help on the horizon. From January 1, 2027, RBI's rules will require banks to refund customers where mis-selling is established, including for insurance products.

Ashok Hegde is the founder of Gyansurance.com, a term insurance education platform.

Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.

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