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Acknowledging the fact that banks mis-sell insurance policies, the Insurance Regulatory and Development Authority of India (Irdai), on 1 August, issued a circular stating that it had received complaints from policyholders on mis-selling of insurance policies by banks and other non-banking financial companies (NBFCs) that are corporate agents. The circular also elaborated on instances of mis-selling. Read on to know how banks can mis-sell or force an insurance plan.
How banks mis-sell
The most commonly used method is to bundle an insurance policy with a loan. The policy is sold as a compulsory requirement to taking a loan and is bundled despite express unwillingness of customers, the circular noted. You should know that buying insurance is not mandatory when taking a loan, but it is advisable to buy a term insurance policy to cover big ticket loans such as a home loan.
What you also need to be wary of is that banks may want to sell you a single premium policy and bundle the premium in the loan amount. This increases your equated monthly instalment (EMI) since it also includes the premium. Don't bundle the premium with the loan. Buy a regular premium policy instead.
Banks also make purchase of insurance a mandatory prerequisite to opening a bank locker. Again, this is not as per regulations. According to a mystery shopping exercise carried out by Mint, banks could even insist on an insurance-cum-investment plan, which is irrelevant to opening a locker (http://bit.ly/1tehzsz).
The Irdai circular further noted that single-premium policies were issued in place of fixed deposits stating better benefits. A fixed deposit is a pure investment product with a guaranteed rate of return, whereas an insurance savings plan is a bundled product which may or may not guarantee the return. Further, insurance plans come with high surrender costs. Fixed deposits and insurance are not substitutable. Buy a product with a goal in mind and one that meets that goal most efficiently.
The regulator also received complaints about policies being sold without customers' consent or signatures, and with incorrect contact details. There have also been instances of banks selling regular premium policies in place of single-premium policies and debiting renewal premiums from customer's bank account without any intimation. This is a clear case of misconduct and if you have been a victim to such malpractice you can take it up using the Integrated Grievance Management System, and ultimately the insurance ombudsman.
What the insurance regulator wants
Even though banks may have taken necessary action against erring employees and also refunded the premium to customers, these steps are not enough, the circular stated. The regulator wants banks and NBFCs to have a system that proactively detects and discourages such kinds of mis-selling. It has also asked insurers to comply with rules and disclose details of Specified Persons (SP). These are individuals responsible for selling insurance plans in banks. Giving out details will help ascertain which SP was responsible for mis-selling.
In arrangement with HT Syndication | MINT
This article was originally published on August 16, 2016.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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