Insurance Uncovered

Mis-selling in common parlance refers to unfair or fraudulent practices adopted at the time of soliciting and selling insurance and, generally, includes selling policies that have not been sought by the customer or which are different from what the customer wanted or was promised or where the product offered for sale does not suit the needs of the customer. Therefore, mis-selling in insurance could be described as selling a product/service to a customer in a manner which is detrimental to his/her interest.

Some of the common examples of mis-selling that a customer should be aware are:

  • Selling annual premium life insurance plans as single premium plan
  • Premiums payable under the policy are beyond the financial capacity of the proposer/disproportionate to the actual sources of income
  • Sale of life insurance plans that are unsuitable, based on the profile/requirements of the customer.
  • Sale of insurance policies without explaining the product features and providing accurate and adequate information about the plan offered for sale.
  • Sale of insurance plans by indulging in forgery, tampering of proposal or related papers
  • Sale of insurance policies in the name of fixed deposits, term deposits, mutual fund schemes, shares etc.
  • Sale of insurance policies by using coercive techniques such as imposing a pre-condition to obtain insurance cover from a particular insurer for sanction of housing loan or any other benefit in respect of principal business carried out by corporate agents, banks/FI’s, either formally or informally.
  • Sale of insurance policies by resorting to spurious calling in the name of officials of IRDAI, RBI, SEBI, insurers and other government agencies such as Ministry of Finance, Income Tax Department etc

Below are some key regulations that protect interest of policyholders:

1. IRDA (Protection of Policyholders’ Interests) Regulations, 2002: This regulation contains a provision for free cancellation of the policy within 15 days of receipt of the document.

Every life insurer, while forwarding the policy to the insured, should inform that he has a period of 15 days from the date of receipt of the document to review the terms and conditions of the policy.

Where the insured disagrees to any of those terms or conditions, he has the option to return the policy stating the reasons for his objection.

On availing the free-look cancellation, the insured would be entitled to a refund of the premium paid, subject only to a deduction of a proportionate risk premium for the period of cover and the expenses incurred by the insurer on medical examination of the proposer and stamp duty charges.

2. The IRDAI (Insurance Advertisements and Disclosure) Regulations, 2000:

This regulation requires the insurers, agents or intermediaries to avoid using “unfair or misleading advertisements” and follow the procedures laid down therein with respect to advertisements (including those on the internet) so that any communication directly or indirectly related to a policy and intended to result in the eventual sale or solicitation of a policy is not misleading or unfair.

3. IRDAI (Registration of Insurance Marketing Firm) Regulations, 2015:

This mandates that agents, brokers and web-aggregators and persons soliciting insurance business should disseminate the requisite information in respect of insurance products offered for sale, understand the policy being sold and be capable of making suitable advice based on the customer needs so that the policy offered / sold meets the requirements of the prospect.

Source: IRDAI

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