Why Mis-Selling Is a Crisis You Cannot Ignore

Walk into any bank branch to open an FD, and there’s a reasonable chance a relationship manager will slide a life insurance brochure across the desk before you leave. It might be framed as a “guaranteed return scheme,” a “tax-free investment,” or a “pension with life cover.” Rarely will they lead with the word “insurance.” This is the heart of the mis-selling epidemic gripping India’s life insurance sector.

The numbers are striking. IRDAI’s Annual Report 2024-25 shows that while total life insurance complaints have remained largely stable at approximately 1,20,429, the proportion classified as Unfair Business Practices (UBP) — the regulatory category that covers mis-selling — has climbed sharply, from 19.33% in FY24 to 22.14% in FY25. In absolute terms, that means 26,667 formal complaints about how policies were sold, explained, and serviced.

IRDAI Member Satyajit Tripathy left no room for ambiguity at the CII Financial Summit in Mumbai: “Grouse in life insurance is about mis-selling a product and I must say that it is at an alarming level.” Policy-makers, not just consumer activists, have officially sounded the alarm.

But data only tells part of the story. The real damage is personal and financial. Research cited by Insurance Samadhan found that 43.3% of all benefits paid by the top 10 life insurers relate to surrendered, withdrawn, discontinued, or lapsed policies — meaning nearly half of Indian policyholders walk away from policies before they can fulfil their purpose. A customer who surrenders a policy in year two can expect to recover as little as 30% of premiums paid, per IRDAI-defined surrender value rules.

The 61-month persistency ratio — a key metric measuring how many policies stay active for five years — sits at a dismal 51%. In a country where insurance penetration languishes at just 3.7% of GDP against the global average of 7.3%, the systemic damage of mis-selling is significant: it creates mistrust, forces premature exits, and denies millions of Indians the financial protection they thought they were paying for.

To protect yourself and your family, you need to know what mis-selling actually looks like on the ground. Below are the five most common and most dangerous red flags — drawn from IRDAI data, ombudsman case analyses, and 15 years of observing how Indian financial distribution actually works.

The 5 Red Flags of Life Insurance Mis-Selling

Mis-Sold Policy vs. Right Policy: Know the Difference

Not every complex financial product is necessarily wrong for you — but you should be able to clearly see what you are buying and why. Use this comparison to evaluate any policy pitch you receive.

Why Mis-Selling Persists: The Commission Incentive Problem

Understanding why mis-selling happens makes you better equipped to recognise it. The answer, in most cases, is straightforward: commissions. Research by 1 Finance Magazine found that India’s top 15 banks collectively earned over ₹21,773 crore in commissions in FY24 from selling insurance and other third-party financial products. Relationship managers at banks are often given monthly targets for insurance premium mobilisation — and their salary increments or bonuses may depend on meeting them.

IRDAI’s own data shows that bancassurance partnerships dominate: corporate agents, including bank partners, accounted for nearly 53% of private life insurers’ individual new business premium in FY25. This structural concentration means that the channel most trusted by ordinary Indians — their own bank — is also the channel carrying the highest mis-selling risk.

Until incentive structures are reformed at a systemic level — something IRDAI’s 2024-25 annual report explicitly calls for — individual vigilance remains the only reliable line of defence for policyholders. The regulator has asked insurers to conduct root-cause analysis and implement product-suitability assessments by distribution channel, but these measures are at an early stage.