What it is
Mis-selling is when a policy is sold on promises that are unfounded, so the buyer ends up with cover or returns different from what they expected. Insurance fraud is wider: it covers deliberate deception by policyholders, and also by insurers, their intermediaries or people pretending to be either.
The insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI), explains on its policyholder portal that fraud comes in two broad kinds. A hard fraud is a deliberately planned or invented loss, such as a staged vehicle theft or setting fire to insured property. A soft fraud, also called opportunistic fraud, is the exaggeration of a genuine claim, and IRDAI says it is more common.
How it works
IRDAI says insurers and intermediaries must act under the Code of Conduct it prescribes, along with rules from industry councils and recognised professional associations. IRDAI says it keeps a tab on unethical practices by entities selling on unfounded promises.
For life insurance, the insurer usually makes a verification call before or after the policy bond (the policy document) is delivered. Its purpose is to check that you understood the terms and conditions. IRDAI advises answering only after reading the policy document, and not relying solely on what the sales person promised.
Warning signs and checks from IRDAI’s guidance
- Unregistered seller. Buy only from a registered insurer or its authorised intermediary. The list of insurers is on IRDAI’s website, and you can ask the insurer whether your intermediary is genuine.
- Blank or incomplete forms. Do not sign a blank proposal form or leave any portion unanswered. If someone else fills it in, make sure the contents are fully explained to you.
- Pressure to hide or tweak facts. Give complete, factual information. IRDAI says false or misleading information can lead to disputes at the time of a claim.
- Vague answers on terms. You should be clear whether the premium is single or regular, what the policy term and premium paying term are (they can differ), what is covered and not covered, and what returns and bonuses are guaranteed.
- Surrender value surprises. The surrender value, the amount payable if you exit early, can be less than the premiums you have paid.
- Unit-linked pitches. For a unit-linked insurance policy (ULIP), where you bear the investment risk, IRDAI says to evaluate fund performance and understand the charges.
What it means for you
When the policy bond arrives, check that it matches what you proposed and agreed. If it does not, you can cancel life and individual health insurance policies (tenure not less than one year) within a 15-day free-look period from the date you receive it. An electronic life policy, or one bought through distance mode, can be cancelled within 30 days of receipt. The premium is refunded with some deductions. For other policies, cancellation depends on the policy’s terms and conditions.
IRDAI’s list of things to avoid also includes falling for spurious calls made in the name of IRDAI or other governmental organisations. The sources do not describe how such calls work, so treat any unexpected caller claiming to represent a regulator with caution and check through official channels.
Remember too that you sign a certificate in the proposal form taking responsibility for its contents, so read what you sign. If you are comparing health cover, our guide to health insurance explains the basics.
Common mistakes to avoid
- Relying only on a sales person’s promises rather than the policy document.
- Signing a blank proposal form.
- Concealing relevant information or making misstatements.
- Confusing a policy’s term with its premium paying term.
- Assuming you will get back everything you paid if you surrender.
