It is customary for industry bodies to time and again talk about “irresponsible” selling or mis-selling by “unethical” agents (by what ever name called). Let us look at what exactly constitutes mis-selling.

Mis-selling as understood by the common man means “selling a product which is inappropriate for the client”. However let us look at the manufacturer’s attitude. Believe me it is very different. Did you know that one very very big ‘Wealth Manager’ sets such high targets that people squirm. He is ruthless in making ULIP sales (he is very polite when he talks about creating wealth for the client!).

If an agent sold a life insurance policy with a “life-cover” to a bachelor on whom no person is dependent, I would think this is mis-selling. The industry would not. They would say ‘sir the client wanted life cover’.

If an insurance policy is sold to a non-earning member (sorry to be gender biased but I mean the house wife) and the husband is the beneficiary, I would think it is mis-selling, the industry may not think so. Similarly in case of a child. I am at a complete loss to know who would be paying the premium in case the breadwinner is no longer around to take care of the premium. However, many people have bought child policies..with no possibility of client understanding. Have you made that mistake too? then you have been mis-sold too.

If the agent is the spouse of Mr. X and Mr. X is a full time employee in a foreign bank, and nicely taps the data base of the bank, I would think this is in the realm of what is wrong, the industry may not think so. Industry is happy with the sale. I know of one RM whose wife’s commission income is greater than her husband’s salary. I doubt if she can fill up a form – forget doing a sale. Industry sees this as best practice.

What really constitutes mis-selling in the minds of a life insurance company? This is very difficult to say, but I do not know of any company which has a comprehensive “mis selling policy”. If it does exist, I do not know about it, my apologies for the same. So mis-selling is not defined, not communicated, not monitored, and thus not bothered about! If it is not measured, monitored or acted upon, I guess the industry pretends that there is no mis-selling. GOD BLESS THEM.

Let us start by saying that the following actions should be mis-selling:

Selling a regular premium product as a single premium product: Very commonly done especially at quarter endings, last day for a scheme getting over, etc. In case you are wondering what is a “scheme”, it is a sales incentive to the agent and could be winning a top end car, a trip to Australia, 1 kg of gold, etc.

Selling a pension plan as an insurance plan, and saying “your medicals have been waived”! This is too simple to explain, correct?

Selling a term insurance plan as an endowment plan.

Not mentioning the charges involved in a mutual fund or an insurance plan – upfront charges, asset management charges, entry load, exit load, bid-buy price, surrender charges, all this may sound like Latin, but if your agent does not know these words, beware.

Saying “in the past 2 years we have achieved 80% return on equity…therefore

“Our charges are the lowest” lie. Very few people outside the actuary industry can understand charges the way it is to be understood. So this lie is perpetuated by the sales team – they have heard it from their own acturial team!

The guy/ gal who visits you is not the agent! It is the agent’s brother, sister, mother, husband, etc.! By a funny law – created by the big insurance companies to suit themselves – agents are “tied” to one company. Strictly speaking the agent should be the person who is “authorized” or “certified” by IRDA. However, knowingly all companies turn a blind eye.

However Indians being Indians they have nicely overcome this “handicap” by making everybody in their house an agent! Simple is it not?!

This is not exactly mis-selling but the guy who comes to you from one bank prospects for his “friend” who has a better product. Look no ones’ complaining!

There are of course millions of instances of mis-selling happening in the market, let us see what can you do as a prospective client to avoid some of these pitfalls:

ask questions: its your money, you are allowed One million questions(and you will decide whether it is a stupid question or not)
Learn more about the products you buy – on the net or in physical form
say what you want clearly, firmly and Loudly.

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  1. Hi Subra,

    Sorry for this being off topic, do SLB make sense for a long term buy and hold investor?


  2. Recently I went to my bank H with a request to open a locker. They simply said that lockers are available, however, it would be allocated only if I ‘invest’ through them. I asked them to explain the product. They showed me an endowment plan with guaranteed return which ‘according to them’ would give me 8% return (actually it is about 5%). I proposed to open FDs of same premium amount but they are not ready to take the offer. Ofcourse they would not- after all, they are more interested in their commission than my ROI.

    Would reporting this to bank ombudsman help?

  3. First put it all in writing with the names, dates, product suggested, etc.

    Send this letter to the branch manager and the bank HO. Saying you will report this to RBI and the Ombudsman. If nothing happens write to RBI and the Ombudsman. Face it Ramesh YOU have nothing to lose.

  4. Ramesh, exact same thing happened with us. Every bank in the neighborhood wanted us to enroll for some such crazy scheme. They’d quote crazy returns of 9-13%. Pattu’s calculators suggested 3.4 – 6%. We went to a bank where a friend of a friend was a manager. He demanded the same thing! We did anyway bite the bullet finally but ensured minimal loss by adopting some measures. We took necessary steps to recover those losses as well…

  5. Near my home two banks are providing lockers, SBI & an local co-operative bank which is more then 50 years old. While there a huge waiting list for lockers in SBI, there were no takers for lockers in co-operative bank. More then 50% of lockers were empty.

    But both SBI & the local bank charge almost same rate for lockers. So isn’t SBI is at disadvantage to issue lockers at same rate although it had a huge trust factor. Ppl had option of taking locker in the co-operative bank but won’t look at it.

    So in these cases of over demand it’s obvious that SBI will do something to increase it’s business when it is not allowed to raise locker fee 🙂

  6. Subra sir

    The govt of india and the birla fund house & personal finance advisors…. all were advising on debt mutual fund. promised a net return of close to the inflation rate or over.

    after analysing all and i parked a big amount of money in it in April 2014 which i need in april 2015… it seems i am screwed but not clear how badly till now… at whom should i scream sitting in a foriegn country?

  7. Banks do not want to create PPF Account without opening a Savings Bank Account. So end up in having one more savings account and the initial deposit amount gets locked.

  8. Sreekanth Yelicherla

    @Lakshmipathy: You can open a PPF account with many Public banks who doesn’t charge you for non-maintenance of average monthly balance. IDBI has customer service on par with private banks. It also enables you to invest in RBI bonds too. Not all Private banks have PPF facilitated branches. For ex, ICICI has only in Mysore and Bangalore in Karnataka state. In case of account holder death, nominee has to struggle with private banks. Public banks have this facility in virtually every district. If you still want to go for a private bank, open a BASIC SERVICE BANK ACCOUNT, so need to maintain any balance or deposit any money mandatorily.

  9. Hi, I am working in Dubai and was contacted by an agent (Omega Insurance) for Zurich Life. Zurich dont sell directly here, only through agents whom they call advisors. After the agent gave me a quote (Futura) I went to check the webpage for a quote. Surprise, Zurich just asks to go to the ‘advisor’, they even have a list of ‘advisors’. I asked the agent for a term insurance with critical illness cover and he said it is not available.

    After paying a few months premium (first 2 years are nill allocation period), I was contacted by another agent who offered a much lower premium and informed that a term plan is available with CI rider. I was surprised and asked my first agent for explanation. From his delay in response, I got the hint and blocked further payments.

    My complaint is with Zurich Life, both Zurich Life and Omega blames each other for the responsibility, for 4 months now. I am waiting for the decision and am planning to go ahead with UAE ‘s Insurance Regulatory Authority and Isle of Man Financial Service Scheme. I am glad that I stopped payments. After all, if Zurich has this much delay and reluctance in solving a complaint, what is the guarantee that they will pay the insurance amount, if I am dead?

  10. Been sold a 15-year Endowment LIC Insurance policies by an uncle. For myself when I was 17 with no dependents.
    Same uncle and one more “LIC uncle” manipulated us after my father’s death, to use his insurance money to buy another useless endowment policy, and 3 useless ULIPs.

    What regulations can be brought to prevent LIC “agents” from manipulating people in grief?

  11. My parents approached A bank for getting locker space . But the branch manager insisted that they buy a “money back” insurance plan (endowment policy) if they want a locker. So they took one in my name and realisation dawned after 4 premium payments so the plan was surrendered, with some loss

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