So, What is Insurance Mis-selling in India? A retired schoolteacher walks into his bank branch with ₹15 lakh of retirement savings. He wants one thing: a fixed deposit. Safe, predictable, with that little bonus interest banks give senior citizens.

He walks out having signed something else entirely – a “special FD” that “beats regular FD returns” and “comes with free life cover.”

Eighteen months later, when ₹1.5 lakh is auto-debited from his account again, he discovers the truth. It was never a fixed deposit.

It was a Unit-Linked Insurance Plan (ULIP) with a 5-year lock-in, a 15-year premium-paying term, and front-loaded charges that ate 30–60% of his first-year money. To get out, he’ll forfeit most of what he paid.

He wasn’t unlucky. He was mis-sold. And that was a true Insurance Mis-selling in India happened with him. And in India today, he has plenty of company.

After years of helping policyholders untangle exactly these situations, I want to lay out – plainly and without jargon – what insurance mis-selling in India actually is, the precise tactics being used right now, why the system keeps producing victims despite tighter rules, and what you can do about it if it has already happened to you or someone you love.

What “mis-selling” actually means?

Insurance Mis-selling in India isn’t a vague grievance. The regulator itself defines it cleanly: it is the sale of an insurance product without proper disclosure of its terms, conditions, or suitability for the buyer.

Notice the two halves. A product can be perfectly legitimate and still be mis-sold – if it’s wrong for you, or if how it works was hidden from you. A ULIP is a real, regulated product.

Sold to a 70-year-old who asked for a fixed deposit and needs monthly income, it becomes a mis-sale. The fault is rarely in the product. It’s in the gap between what was promised and what was delivered.

The scale: it’s getting worse, not better!

Here is the number that should bother everyone in this sector. In FY25, grievances classified as “unfair business practices” – the regulatory bucket that captures mis-selling – rose to 26,667, up roughly 14% year-on-year.

They now make up over 22% of all complaints against life insurers, up from about 19% the year before.

Sit with that. India has spent years tightening disclosure rules, adding mandatory benefit illustrations, customer information sheets, and consent acknowledgements.

And complaints of insurance mis-selling in India went up as a share of the total. The rules on paper are improving. Behaviour at the point of sale is not.

It gets starker. Of the mis-selling cases resolved last year, more than 15,000 were decided against the policyholder, while only around 11,400 went fully or partly in their favour.

In other words: most people who formally complain about being mis-sold still don’t get the outcome they wanted. The deck is stacked at both ends – at the sale, and at the redress.

Follow the money: why this keeps happening?

Insurance Mis-selling in India is not primarily a story of bad people. It’s a story of bad incentives, and the incentives are extraordinary.

When a bank or agent sells you a traditional endowment or ULIP, the commission on a first-year premium can run as high as 60–65%. Compare that to roughly 1% a year on a mutual fund.

By some estimates, distributors earn anywhere from 2 to over 11 times more pushing an insurance product than they would steering you toward a simpler, cheaper investment that might actually suit you better.

Now scale it up. In a single recent financial year, India’s 15 largest banks earned around ₹21,773 crore in commissions from selling insurance, mutual funds, and similar products.

For some banks, fee and commission income has become a meaningful chunk of total income. The branch isn’t neutral. It’s a sales floor – and insurance carries the fattest payout on the shelf.

This is why banks now dominate life insurance distribution. Corporate agents – overwhelmingly banks – account for roughly 53% of private life insurers’ individual new business premium, with banks alone driving nearly half.

Direct and online channels, where you’d buy a clean term plan after doing your own research, together make up a sliver. Most Indians don’t choose their policy. It is sold to them, across the counter, by someone they trust, who is quietly working to a monthly target sheet.

As one relationship manager candidly admitted in an interview: if my performance is measured on selling 20 ULIPs a month, I will pitch ULIPs at every opportunity I get.

That’s not villainy. That’s a comp plan doing exactly what it was designed to do.

The seven tactics of Insurance Mis-selling in India

Here are the specific plays I see most often under insurance mis-selling in India. If you recognize any of these, treat it as a red flag.

• The “Special FD” disguise. The single most common trap. A ULIP or endowment plan is presented as a fixed deposit with “better returns.” The words “fixed deposit” get used loosely; the policy form gets signed. Seniors asking for a simple FD are the prime targets.
• “Guaranteed” returns on a non-guaranteed product. Market-linked products legally cannot promise returns. So the pitch sidesteps the law: the RM shows you past performance charts and presents them as future certainty – “this gave 12–15%, you’ll get the same.” You won’t. It isn’t guaranteed, and the illustration almost never highlights the charges dragging it down.
• Bundling and coercion. “Your loan will get approved faster if you take this policy.” “The locker is only available to insurance customers.” “This is mandatory with the account.” None of it is true, but it manufactures pressure at a moment when you need the bank’s cooperation.
• Targeting the vulnerable. Senior citizens, people with low financial literacy, rural customers, and even the cognitively impaired are deliberately approached because they’re least likely to question the pitch or read the fine print. There are documented cases of policies renewed with forged signatures, without the customer’s knowledge.
• Wrong details on the form. The agent “helpfully” fills the proposal for you – and enters incorrect income, age, health history, occupation, or nominee. This isn’t a favour. Misstated facts can become the insurer’s reason to reject a future claim. The convenience at sale becomes the rejection at claim.
• Churning. You’re persuaded to surrender an existing policy and buy a “better” new one. Often the only thing that improves is the agent’s commission, while you eat surrender charges and reset the clock on a fresh lock-in.
• The unaffordable premium. A retiree on a ₹3 lakh annual pension gets signed up for policies demanding ₹3.5 lakh a year in premiums – sometimes across multiple insurers, sometimes for policies not even in their own name. Nobody checked whether they could actually sustain the payments. (This is a real, documented pattern, not a hypothetical.) When the premiums can’t be paid, the policy lapses and the money already paid is largely lost.

Why the rules keep failing?

We are not short of regulation. The IRDAI framework already mandates a signed benefit illustration (“no illustration, no sale”), a Customer Information Sheet in plain language, suitability checks, and consent acknowledgements.

The RBI has publicly told banks they must run a genuine customer-needs analysis before selling investment-linked insurance.

So why does it keep happening? Three structural reasons.

Tick-box compliance. The forms get filled, but understanding doesn’t get checked. Consent collapses into a casually shared OTP – the customer taps “yes” without grasping a single term.

Diffused accountability. A modern sale passes through an agent, a bank branch, a bancassurance partner, sometimes a telecaller. Everybody touches the sale; nobody owns the outcome. When something goes wrong, the penalty – if any – is absorbed by the company, and the individual who actually mis-sold faces little consequence.

Weak deterrence. Regulatory reviews routinely flag bad sales practices, but enforcement is slow and the penalties are often smaller than the commercial gains. When the fine costs less than the profit, the behaviour is rational.

If it has already happened to you – here’s your playbook!

This is the part most people don’t know, and it’s the part that matters. You have real, enforceable rights. Use them in order.

Step 1 – The free-look period. Every new policy comes with a free-look window – now standardised to 30 days under IRDAI’s recent norms – during which you can return the policy and get a refund (minus small adjustments). Send the cancellation in writing, directly to the insurer, not just to the agent. Don’t let anyone “hold” your policy documents past this window – that delay is itself a tactic. Always check the exact free-look clause printed in your own policy bond.

Step 2 – Complain to the insurer first. Find the Grievance Redressal Officer’s email on page one of your policy document. Put your complaint in writing, keep proof, and give them their stipulated window to respond.

Step 3 – Escalate to Bima Bharosa. If the insurer ignores you or fobs you off, take it to IRDAI’s official grievance portal: bimabharosa.irdai.gov.in. You can also call the toll-free line 155255 or email complaints@irdai.gov.in. Register the complaint, upload your evidence – emails, messages, call recordings, the proposal form, statements showing debits – and note your reference number to track it. (One safety note: the portal never asks you for any payment. Anyone demanding money to “release your refund” is running a scam.)

Step 4 – The Insurance Ombudsman. Still unresolved? The Insurance Ombudsman is a quasi-judicial body with offices across the country. Filing is free, you don’t need a lawyer, and awards up to ₹50 lakh are binding on the insurer. Generally you can approach the Ombudsman after the insurer’s reply (or 30 days of silence) and within one year of that.

Document everything from day one. The single biggest reason mis-selling complaints fail is thin evidence and missed deadlines. The single biggest reason they succeed is a clean paper trail filed on time.

Final Thoughts

Insurance is meant to be a safety net – the thing that catches a family on its worst day. When it’s sold for a commission instead of a need, it stops being protection and becomes a trap dressed up as one.

The encouraging news is that an informed customer is a very hard target. The tactics only work in the dark.

So before you sign anything labelled “guaranteed,” “special FD,” or “tax-free returns,” ask one question: Is this genuinely right for me – or right for someone’s target sheet?

If you suspect you or a family member has been mis-sold a policy, don’t assume the money is gone. Most cases settle at the free-look or grievance stage when they’re filed correctly and on time.

Getting the sequence right is the whole game – and it’s exactly the kind of fight we help people win at ClaimChase.

Have you or someone in your family been pushed a “special FD” that turned out to be insurance? Share your experience below – the more we talk about this openly, the harder these tactics become to pull off.

Disclaimer: This article is for general awareness and education only and does not constitute legal or financial advice. Rules, timelines, and free-look periods can change and may vary by policy type and issue date – always verify against your own policy document and the current IRDAI circulars, or consult a qualified professional.