Bancassurance and your wallet: Spot the traps before you sign

Mint

4 hours ago

NEW DELHI
:
Insurance mis-selling at banks is an open secret. Even Union finance minister Nirmala Sitharaman and Reserve Bank of India (RBI) governor Sanjay Malhotra have acknowledged it at public forums, yet little has changed. Customers who were mis-sold policies continue to bear the brunt.
Jeet Singh Bisht, 74, a Delhi-based retired businessman and customer of a small finance bank, was persuaded by the bank's team to buy two investment-cum-insurance plans. The promise was simple: Pay a premium once and receive a lump sum after 10 years.
However, just a year later, the terms appeared to change. He was told that annual payments would be required for at least five years—contradicting the original assurance. His appeals to the bank and the insurer brought no resolution, with officials denying any mis-selling.
What to do in such a situation?
You need to keep at it. Fight for your cause. Frustrated Singh searched online for help and found Insurance Samadhan, a platform for the resolution of insurance claims. The organization reviewed his documents, took the matter to the consumer court and negotiated a settlement.
'The bank's team misled me into buying a plan with false commitments. I recovered much of the money, but that was after a lot of hassles," Singh said.
Prevention is better than cure. To avoid the mis-selling trap, you need to identify red flags.
Red flags
Bancassurance works on trust. You already know and trust your relationship manager. So when they recommend a financial product, you are more likely to take it at face value. And that is where mis-selling may happen. The idea is not to fall for such sales pitches without understanding the fine print.
If you are being mis-sold, several tell-tale signs can serve as warnings.
One common problem customers face is the lack of clarity of the terms and conditions around the product they are buying. Banks tend to over-emphasize the maturity benefits without clarifying conditions or assumptions.
'Very often, customers are unclear about the policy tenure, lock-in periods, or surrender charges, etc. This leads to them investing in a product that's probably not the right fit for them, and they do it without understanding the underlying complexities, complicating their chances of an exit," said Adhil Shetty, chief executive, BankBazaar.com.
Tread with caution when speaking to bank relationship managers. Be doubtful of what they are saying. Consumers should be particularly cautious if they feel pressured to make a quick purchase without adequate explanation or time to review details. The absence of complete documentation, such as brochures or benefit illustrations, should raise immediate concern. Thus, a key red flag is when you are pressurized to decide immediately.
'If you're told 'this offer is only valid today' or not given time to read the policy documents, pause," said Shetty.
Promises of guaranteed returns without supporting official documentation are a major warning sign, as insurance-based investments inherently carry some level of risk. 'Other red flags include being told a policy is mandatory for accessing a loan or banking service, or encountering evasive responses to direct questions about exclusions, surrender charges, or potential downsides," said Mishra.
For example, it is a common gimmick to tell you that your home loan will not be sanctioned if you do not take a term insurance. However, both the RBI and Insurance Regulatory and Development Authority of India (Irdai) have clarified that it is not mandatory.
Always insist on receiving official brochures, benefit illustrations, and policy wordings before making a decision. 'Written records protect you from misunderstandings and are your strongest defence if the product turns out to be different from what was promised," said Shetty.
'If you are being pressurized to purchase a home loan cover for the home loan, communicate to the lender that you know that it is not mandatory to buy home loan cover to get a home loan. 'Also request them to give a written document stating that a loan cover is mandatory to get the loan. This will deter them from pushing any non-mandatory products," said Shetty.
You can also inform the bank about the term plan that you have or intend to buy which can cover the loan payment default if any.
All policies have a 15-30-day free-look period. So, if the policy was issued recently, you can cancel it and get a refund. If you were misled or coerced into buying insurance, you can also raise a written complaint with the bank outlining the situation and request a refund.
If the bank refuses to act, you can file a complaint with the Irdai grievance redressal cell or the Banking Ombudsman (RBI) through the RBI CMS portal. Note that in the latter case, you may need to provide evidence that you were coerced into buying a product.
RBI action
RBI governor Sanjay Malhotra has recently affirmed that, despite mounting complaints about insurance mis-selling via banks, the bancassurance channel won't be restricted, given its role in expanding financial inclusion. Instead, the central bank will implement stronger safeguards, enhance customer education, and improve oversight to prevent malpractices.
The RBI has brought in several measures to curb mis-selling, but it still persists. 'As per the Master Circular on Protection of Policyholders' Interests, 2024 (issued 5 September 2024), insurers must include a customized benefit illustration, a document detailing projected benefits (guaranteed and non-guaranteed) tailored to the customer's profile, as part of the policy document," said Shilpa Arora, chief operating officer and co-founder, Insurance Samadhan.
Crucially, this illustration must be signed by both the customer and the authorized salesperson, not just the earlier proposal form.
Additionally, a 'need analysis' document, explaining why the recommended policy suits the customer's needs, must accompany the policy, where applicable.
'Irdai is stepping up monitoring of bancassurance channels, especially when complaints surge, and flagging entities engaging in potential mis-selling. Regulators have also cautioned banks directly about mis-selling risks and called for sales to be based on customer requirements, not incentives or targets," said Arora.