Insurance in India: A Practical Guide
Bancassurance and Mis-Selling
How banks sell insurance products to customers, why this has led to mis-selling of unsuitable policies, and how customers can protect themselves.
Bancassurance means banks selling insurance products to their customers, earning commissions.
Why it grew
- Banks have large customer bases and trust.
- Insurers gain distribution.
- Banks earn fee income.
Bancassurance became a major channel for Indian life insurance.
The mis-selling problem
Customers have complained of:
- Being sold insurance as fixed deposits, with promises of “guaranteed returns”.
- Elderly customers sold long-term policies unsuitable for their age.
- Policies bundled with loans without explanation.
- Pressure from bank staff with sales targets.
The RBI and IRDAI have repeatedly warned banks about mis-selling. In 2025, the finance ministry reportedly urged banks to curb mis-selling of insurance.
Why it happens
- High commissions on some products.
- Targets for bank staff.
- Trust: customers assume bank staff act in their interest.
Protecting yourself
- Ask whether the product is insurance or a deposit.
- Read the benefit illustration and key features.
- Don’t sign blank forms.
- Use the free-look period to cancel unsuitable policies.
- Complain to the bank, insurer, IRDAI and Insurance Ombudsman if mis-sold.
Loan-linked insurance
Insurance with home or personal loans may be useful, but you usually aren’t required to buy the bank’s product; compare options.
A retired man visits his bank to renew a fixed deposit. Staff persuade him to put the money into a "better" plan, which turns out to be a 10-year insurance policy with low returns and surrender charges. He uses the free-look period to cancel it.
Sales targets and commissions can create conflicts of interest.
- Bancassurance lets banks sell insurance and earn commissions.
- Mis-selling includes passing off insurance as deposits.
- Regulators have repeatedly warned banks.
- Read documents, use the free-look period and complain if mis-sold.
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