The Insurance Regulatory and Development Authority of India (IRDAI) has released a consultation paper on September 23, 2025, outlining 12 practices it proposes to treat as mis-selling of life insurance. According to reports from NDTV Profit, this list represents the regulator's qualification of bad sales practices in the insurance distribution sector. The paper serves as a guide for consumers to identify potentially mis-sold policies and understand their rights. As per Zee Business, the proposals discussed by experts include measures related to commissions, accountability and identifying instances of mis-selling.
The IRDAI's proposed mis-selling checklist includes several critical warning signs for consumers. As reported by NDTV Profit, selling regular-premium policies as single-premium products tops the list, where consumers believe they are making a one-time investment but receive renewal notices. Promising returns that are not guaranteed through participating plans or ULIPs also qualifies as mis-selling, as agents often market 'assured returns' that may not materialize. The regulator emphasizes that policies should be affordable based on the buyer's income capacity and appropriate for their age and family structure. Selling insurance as a 'fixed-income deposit' or guaranteed return savings plan in place of bank deposits when returns are lower or comparable would also qualify as mis-selling, as life insurance savings plans combine life cover and investment, not function as deposits.
According to IRDAI's data cited in the report, policyholders who surrender at the end of the first year receive only between 31% and 64% of the premium paid back. As reported by NDTV Profit, this represents one of the most significant financial impacts of mis-selling, as the cost of stopping payments often proves to be the most expensive surprise for consumers. The regulator specifically warns against selling regular-premium plans without explaining the surrender value implications. On non-participating savings plans sold through banks and other corporate agents, commission and rewards averaged between 29% and 60% of the first-year premium, according to IRDAI's figures, highlighting the significant earning potential for agents that can influence sales decisions. According to Zee Business, around 60% of customers continue into the second year and only about 28% remain by the fifth year, highlighting the persistent nature of mis-selling issues.
The Insurance Brokers Association of India (IBAI) has raised significant concerns about IRDAI's proposed distribution reforms, warning that the changes could put at least 1 million livelihoods at risk over the next five years. In an October 2 letter to Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman, IBAI cautioned that the proposed introduction of more than 30 commission caps across products and distribution channels, coupled with a one-third reduction in insurers' overall expense limits, could hurt employment, competition and insurance penetration. The association urged the government not to notify the proposed regulations without first publishing an impact assessment and sought continuation of the existing expense-of-management framework until its scheduled review in 2028. IBAI also warned that product-specific commission sub-caps could prompt insurers to route payouts through alternative mechanisms, potentially reviving tax-compliance issues.
For consumers who believe they have been mis-sold policies, IRDAI provides specific recourse options. According to the report, if a policy was purchased within the last 30 days, it can be returned under the free-look period with premium refund minus deductions for days covered, stamp duty, and medical tests. For older policies, consumers can file complaints with the insurer in writing and escalate to the Insurance Ombudsman within a year if no satisfactory response is received. 63% of complaints disposed of on Bima Bharosa in FY26 were settled in the policyholder's favour, as reported by NDTV Profit. As per Zee Business, experts recommend that consumers should read the policy summary, understand key conditions such as lock-ins and surrender values, and distinguish between insurance protection and investment before purchasing a policy.
The regulatory framework extends beyond traditional insurance channels to include banking sector improvements. As reported by NDTV Profit, from January 1, 2027, RBI's rules will require banks to refund customers where mis-selling is established, including for insurance products. This enhancement provides additional protection for consumers who purchase insurance through banking channels, addressing the growing trend of insurance distribution through financial institutions. According to Zee Business, the discussion specifically covered home loans, where insurance linked to a home loan should be optional, and customers should have the freedom to choose another insurer. The proposed changes also include a reduction in commission on such insurance from 23-28% to 2-5% levels.
