Spot the traps before you sign

In fact, bancassurance sales incentives can strongly influence product recommendations, with staff often prioritising high-commission policies over genuine customer needs.

Sample this: Jeet Singh Bisht, a 74- year-old Delhi-based retired businessman and customer of a small finance bank, experienced this first-hand. He was persuaded by the lender’s team to buy two investment-cum-insurance policies, under a simple promise: pay a premium once and receive a lump sum after 10 years.

However, just a year later, the terms unexpectedly changed. He was informed that annual payments would be required for at least five years—directly contradicting the original assurance. Bisht’s repeated appeals to the bank and the insurance company brought no resolution, with officials denying any mis-selling despite the clear discrepancy.

What to do in such a situation?

You will 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 consumer court and negotiated a settlement. “The bank’s team had misled me into buying an insurance policy with false commitments. I recovered much of the money, but that was after a lot of hassles,” Singh said.

Therefore, prevention is better than cure, and 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.

A 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. “Often, customers are unclear about policy tenure, lock-in periods, or surrender charges, etc. This leads to investing in a product that’s probably not a right fit for them, and they do it without understanding the underlying complexities, complicating their chances of an exit,” said BankBazaar.com CEO Adhil Shetty.

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 proper documents are a key warning, as insurance investments carry risk. “Other red flags: being told a policy is mandatory for loans or services, getting evasive answers on exclusions or charges, and ignoring potential downsides,” said Prashant Mishra, Founder & CEO of Agnam Advisors, a fee-only investment advisory firm.

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 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 insurance policies come with a 15-30-day free-look period. This means that if the policy was issued recently, you have the right to cancel it within this period and receive a full refund. Additionally, if you believe you were misled, mis-sold, or coerced into purchasing a policy, you can submit a written complaint to the bank detailing the situation and formally request a refund.If the bank fails to address your complaint or refuses to act, you have the option to escalate the matter. You can file a grievance with the Insurance Regulatory and Development Authority of India (Irdai) grievance redressal cell or approach the Banking Ombudsman under the Reserve Bank of India through the RBI’s CMS portal. In such cases, it is important to provide supporting evidence that shows you were pressured or misled into buying the policy.

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.

While regulators are tightening safeguards, the onus remains on customers to stay alert, ask the right questions, demand written proof, and fully understand their rights.