How are vulnerable groups mis-sold life insurance policies?

Unfortunately, mis-selling and dishonest practices in different sectors of the economy are common issues affecting many consumers. Certain demographics, in particular the elderly and low-income individuals, may be more susceptible to these unethical practices due to various reasons. Here, we examine how and why these groups are more vulnerable and look at the protective measures that have been put in place to guard against such exploitation.

Elderly or low-income groups tend to be more susceptible to mis-selling insurance policies and dishonest practices. Typically, insurance companies and agents target senior citizens, homemakers, and other low-income groups in these ways -

Senior citizens: The elderly population, due to cognitive decline, lack of technological savvy, or being unacquainted with the changing market, can often become the prime targets of insurance mis-selling.

Most senior citizens hold savings accounts and fixed deposits at their banks. Usually, when they renew their fixed deposits, bank managers often try to sell them regular premium insurance policies. However, they often lack the clarity that the products are sold in the name of their family members, and the senior citizen becomes their proposers. “In our experience, senior citizen account holders usually sign the proposal form without proper verification as they trust their bank,” said Shilpa Arora, COO and Co-Founder of Insurance Samadhan.

Low-income individuals: Low-income groups are often the most vulnerable due to limited access to quality financial education. Due to this, they may not fully apprehend the details of complicated financial products, loan deals, or investment schemes, leaving them open to exploitation. Lower-income individuals also often face pressure to accept services they can hardly afford, mainly because alternative options may seem inaccessible or non-existent to them.

Arora said, “Individuals who need loans to invest in small businesses or build assets are often sold a policy with the allurement of credit. Often, small shoppers, businesses, farmers, and homemakers seeking loans are approached by insurance agents who lure them with the promise of interest-free loans on their purchase of a life insurance policy. These agents seldom explain the product and convince them that the premium will serve as the loan EMI. As a result, insured ones believe the premium is going towards the loan repayment.”

Homemakers: Most homemakers who put their savings in fixed deposits are approached with regular premium-paying life insurance policies. Arora said, "Sometimes agents ask housewives to pay for 3 years to generate tax-free high returns, which appeals to most. However, because of their low financial knowledge, they end up as a victim of mis-selling because the insurer often skips to mention that the policy buyer needs to pay the policy premium regularly or else they would lose their investment. They are told that if they pay their premium for 2-3 years, they will avail of a surrender value relatively lower than they could have made by investing for the same tenure."

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What should you do? 

Individuals must be cautious and alert when purchasing an insurance policy as a financial product. They must be clear that life insurance is for financial protection, so they must not expect high returns.

Several measures, however, are in place to mitigate the impact of mis-selling and dishonest practices on these vulnerable populations. Regulatory authorities have come up with a robust and systematic framework to ensure financial markets' fairness and transparency. Governmental and non-governmental institutions also provide financial literacy programs to educate consumers about complex financial products, the rights they possess, and the remedies available when their rights are violated. For instance, if you are miss-sold an insurance policy, you can take the following steps:

File report against mis-selling: If any elderly or low-income individual feels that they have been mis-sold, they must report to the insurance company, preferably within the 15-day free look period that starts when they receive their policy document.

Read the policy document: Individuals must read the fine print carefully, and if something promised is not mentioned, they can file a report to avail refund of the premium.

Raise complaint at Irdai’s platform: Individuals can also raise a complaint at Irdai's Bima Bharosa platform, which the company will respond to within 14 days.

“They can opt to contact the Insurance/Banking Ombudsman if the response they availed from the company and Bima Bharosa is dissatisfactory. If all fails, they can seek a grievance at the consumer court,” said Arora.