IRDAI Presses Insurers on Mis-Selling and High Costs: What Policyholders Should Check

The Insurance Regulatory and Development Authority of India (IRDAI) is pushing to repair problems in the insurance sector, with mis-selling, high costs and fragile customer trust at the centre of the effort, according to reporting by NDTV Profit. For buyers, the practical meaning is simple: expect closer scrutiny of how policies are sold, and check what you are being sold before you pay.

The source headline does not spell out specific rules, deadlines or penalties, so this article does not guess at them. What it can do is explain the standing background: how mis-selling happens, why costs matter so much to your returns, and which protections you already have today.

If you are about to buy a policy, or already hold one you do not fully understand, the next few sections give you a checklist you can use immediately.

Key takeaways

• According to NDTV Profit, IRDAI is working on mis-selling, high costs and weak trust in the insurance sector.
• Mis-selling usually means a product that does not match the buyer's need, often a savings-style plan sold as if it were protection.
• Costs, including commissions, charges and surrender penalties, quietly cut returns over long policy terms.
• Existing protections such as the free-look period and the ombudsman route are available to you right now.
• Do not surrender a policy in a hurry; compare the surrender value with the cost of continuing first.
• Insurance bundled with a loan is optional in most cases; read the paperwork before agreeing.

What is the IRDAI push to fix the insurance sector about?

IRDAI is the statutory regulator for insurance in India. It frames the rules insurers must follow on product design, disclosures, agent conduct, claims settlement and how complaints are handled. When a regulator signals a push on mis-selling, costs and trust, it is acknowledging that the customer experience in some parts of the market has not matched what was promised at the point of sale.

NDTV Profit's reporting groups the issues under three headings: mis-selling, high costs and fragile trust. Those three are linked. A customer who buys a product that does not suit them, at a price higher than necessary, and then finds the claim or surrender experience difficult, is unlikely to trust the sector again. Trust, in turn, matters for a country where only a fraction of households carry adequate protection.

We have not seen the underlying details beyond the headline, so treat any specific measure you see quoted elsewhere as something to verify on the regulator's own website at irdai.gov.in before acting on it.

How mis-selling happens in practice

Mis-selling is rarely a dramatic lie. More often it is a mismatch that is not made obvious. These are the patterns buyers commonly describe:

1. Savings plan sold as protection. A policy with a small life cover and a long premium term is described mainly through its maturity benefit.
2. Bundled products. Insurance is attached to a loan, a credit card or a bank account as if it were part of the package.
3. Pressure on the premium paying term. Buyers are encouraged to commit to ten or twenty years without being shown what happens if they stop after three.
4. Unclear return claims. Illustrated benefits are presented as if they were guaranteed.
5. Policy replacement. An older policy is surrendered to buy a new one, so the buyer pays acquisition costs twice.

None of this means every agent or bank acts this way. Many advisers sell appropriately. The point is that the buyer is often the only person in the room who bears the long-term consequence, so the buyer needs a simple way to test what is on offer.

Why high costs matter more than they look

Insurance costs are layered: distribution commission, administration, mortality or morbidity charges, fund management charges for market-linked plans, and surrender or discontinuance charges. They are rarely shown as a single rupee figure, which is why they are easy to underestimate.

The arithmetic below is purely illustrative and uses assumed returns, not any product's actual numbers. It shows what a ₹50,000 annual premium, paid at the end of each year for ten years, grows to at different net yearly returns. Total paid is ₹5,00,000 in every case.

Assumed net yearly return after all costs	Approximate value after 10 years	Gain over ₹5,00,000 paid
3%	₹5,73,000	₹73,000
4%	₹6,00,000	₹1,00,000
5%	₹6,29,000	₹1,29,000
6%	₹6,59,000	₹1,59,000

A single percentage point of extra yearly cost moves the end value by roughly ₹30,000 on this schedule. Stretch the term to twenty years or raise the premium and the gap widens considerably. That is why asking for the total charges, not just the headline benefit, is the single most useful question a buyer can ask.

The same logic applies to loans. If a premium is financed inside a loan, you also pay interest on it. You can test that effect with the EMI calculators by adding the premium to the principal and comparing the EMI.

What changes for policyholders and buyers

Based on the headline alone, we cannot say which rule will change or when. What we can say is what a buyer should reasonably expect from a sector under regulatory pressure on these themes: clearer disclosure of charges, closer attention to who sells what, and a stronger grievance route. Until formal measures are in force, the existing safeguards still apply.

Situation	Protection available today	What you should do
You just bought a policy and doubt it	Free-look period, normally 15 days (30 days for distance-marketed policies)	Read the policy document and cancel inside the window if it does not match what you were told
Claim rejected or delayed	Written reasons, insurer's grievance cell, then the Insurance Ombudsman	Ask for the reason in writing and escalate in sequence
Insurer contests an old claim	Section 45 of the Insurance Act limits contesting a life policy after three years, except for proven fraud	Keep proposal-form records and be accurate when filling them
Policy not suiting you after years	Surrender or paid-up options with charges	Get the surrender value in writing before deciding

The free-look period is the cheapest remedy in the system, and most buyers never use it. Put a reminder on your phone the day you receive a policy.

Who is affected and who is not

The people most exposed are buyers of long-tenure savings-linked life policies, those who bought through a bank or a loan counter, and first-time buyers who relied on a single adviser. People who hold a plain term plan or a standard health policy bought after comparing options are the least exposed to the problems described.

Borrowers deserve particular attention. When you take a personal loan or a home loan, lenders may offer credit protection or life cover alongside it. Such cover can be sensible, since it can clear an outstanding balance for your family, but it should be a conscious choice. Ask for the premium in rupees, whether it is a single premium added to the loan amount, and whether you can instead buy a separate term plan that you control.

Those not directly affected are people who do not hold insurance at all. For them the story is the opposite: the risk is being underinsured, and the push for trust is meant to make that first purchase safer, not to discourage it.

What to do now: a policy checklist

Use this checklist for every policy you own or are about to buy:

1. Write down the goal. Is it protection for dependants, health expenses, or savings? A single product rarely does all three well.
2. Ask for the cover and the premium in one sentence. For example, 'I pay ₹X a year and my family receives ₹Y if I die.' If the person selling cannot state it, pause.
3. Request the benefit illustration and the charges. Look for the surrender value in years one to five, not only at maturity.
4. Check the premium paying term. Be sure you can afford it for the whole term, because stopping early is where much of the loss arises.
5. Keep a copy of the proposal form. Answers on health, income and habits are what the insurer relies on at claim time.
6. Note your nominee and keep contact details current. Many claim delays begin with outdated information.
7. Use the free-look window. If anything differs from what you were told, cancel in writing within the period.

Before deciding how much cover you need, check your repayment commitments and income with the eligibility check, since your debt load changes how much protection your family needs.

Common mistakes and the outlook

The most frequent mistakes are buying insurance for tax saving alone, mixing investment and protection in one product, signing forms without reading the declaration, and surrendering early without checking the numbers. Another is assuming a bank branch recommendation is neutral; the branch may earn a commission on the product just as an agent does.

The outlook depends on how the measures reported by NDTV Profit are turned into rules, how consistently they are enforced, and how quickly insurers adjust their selling practices. Regulatory change in financial products tends to arrive in phases: draft proposals, consultation, final norms and a compliance period. Readers who want to follow the story can keep an eye on the news hub for updates and check the regulator's website for formal circulars.

Trust is rebuilt slowly, through settled claims and honest disclosure. In the meantime, an informed buyer is the best protection a household has.

Frequently asked questions

What is mis-selling in insurance?

Mis-selling means a policy is sold in a way that does not fit the buyer's real need or is described misleadingly. A common example is a savings-style plan presented as if it were mainly protection. The result is that the buyer pays more, or gets less cover, than they expected.

Can I cancel an insurance policy after buying it?

Yes. Under IRDAI's policyholder protection norms there is a free-look period, normally 15 days from receiving the policy document, extended to 30 days for policies sold through distance marketing. You can return the policy if you disagree with the terms, and the insurer refunds the premium after deducting limited permitted costs such as stamp duty and medical expenses.

Should I surrender my existing policy because of this news?

Not automatically. Surrender charges often make early exit expensive, and the premiums already paid cannot be recovered. Ask the insurer for the current surrender value and the paid-up option in writing, then compare with the cost of simply continuing.

Is insurance sold with a loan compulsory?

In most cases it should not be a condition of getting the loan, although lenders may recommend cover. Ask whether the premium is optional, how much it is, and whether it is added to the loan principal. Compare it with a standalone term plan before agreeing.

Where can I complain if my insurer does not resolve my issue?

Start with the insurer's grievance redressal officer and keep written records. If the response is unsatisfactory or delayed, you can approach IRDAI's grievance channel and the Insurance Ombudsman for your region. Details are on the regulator's website.