How to combat misselling in life insurance
Summary
For customers, being informed and proactive is key to making sound insurance decisions.
Life insurance is a crucial pillar of financial security, offering peace of mind and protection for your loved ones. However, customers often find themselves with policies that don’t align with their actual needs. Sometimes, what customers truly require is not what they’re offered, as the focus shifts toward savings or investments rather than essential protection. This leads to confusion, unaffordable premiums, disrupted financial planning, and a gradual erosion of trust in insurance.
To address these concerns, regulatory bodies such as the Insurance Regulatory and Development Authority (IRDAI) and the finance ministry have been advocating responsible sales practices. A recent advisory has urged financial institutions to focus on customer-centric solutions, reinforcing the need for transparency across the industry. For customers, being informed and proactive is key to making sound insurance decisions.
Understanding and navigating misselling
Misselling in life insurance typically falls into four key categories. First, customers may be sold unsuitable products that don’t align with their financial goals, risk tolerance, or protection needs. Second, misrepresentation occurs when benefits are exaggerated, risks are downplayed, or key details are withheld. Third, sales are often driven by commission incentives rather than customer interests. Lastly, exclusions, surrender charges, and other critical terms may be omitted, leaving customers unaware of important conditions affecting their coverage.
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Take, for example, a young professional who is advised to invest in a unit-linked plan with promised high returns. However, what they may actually need is a simple term plan that offers much higher coverage at a fraction of the cost, ensuring true financial protection for their family.
The myth that young individuals don’t need term insurance is often exploited. In truth, buying early guarantees lowers premiums and frees up income for other financial goals. Being pushed into the wrong product can lead to cancellations and regret, right when coverage is needed the most. Worse, it can leave dependents financially vulnerable in case of an untimely demise.
Harnessing technology to make well-informed decisions
While insurers and distributors must ensure transparency, customers, too, must take charge of their research. Reading policy terms, understanding coverage types, and being aware of exclusions are essential steps.
As part of this process, below are some important questions one should consider while doing their research:
- Does the policy meet your primary financial need—protection, savings, or investment?
- Is the coverage amount adequate to support your dependents and cover liabilities?
- Can you afford the premiums over the long term without straining your finances?
- Have you reviewed all exclusions, surrender clauses, and other critical policy terms?
- Are you choosing this policy based on your needs or due to persuasive sales tactics?
To aid this journey, insurers are adopting technology-driven tools like real-life scenarios, video explainers, and interactive digital platforms to help customers better understand offerings.
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These digital advancements are turning life insurance from a push product—driven by aggressive selling—into a pull product that customers actively seek. AI-based tools now assess financial needs and suggest plans that suit individual profiles rather than commission structures. Interactive documents, planning tools, and customer reviews further empower users to make educated choices.
Additionally, real-time policy updates, claims tracking, and digital dashboards give customers greater control over their policies. This shift reduces overreliance on agents and supports a transparent, customer-first model, making it easier for individuals to make decisions without undue pressure.
The future: A balance of tech and transparency
From an industry perspective, the convergence of technology and transparency is driving a more consumer-centric shift. With regulatory support for fairer practices, a digital-first approach is not only inevitable but essential. It ensures insurance serves its core purpose—providing security and peace of mind.
From a customer standpoint, taking control of one’s financial future means staying informed and using the digital tools now available. Reading the fine print, seeking independent advice, and comparing policies online can help avoid the traps of misselling. Choosing insurers with direct-to-consumer models and open, clear communication further reduces the risk of hidden charges and unnecessary riders.
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By embracing technology and demanding transparency, customers can move away from an era when life insurance was an opaque, push-based product. Instead, they can approach it as a customizable, trustworthy service that prioritises protection. In this new landscape, the focus returns to what truly matters—building a reliable safety net that secures their family’s financial future.
Sandip Goenka is the chief executive of ACKO Life Insurance.
