Last Updated on April 21, 2026 by teamtfl
“The first duty of a financial advisor is to the client – not to the product manufacturer.” – Fiduciary principle
A few years ago, a client came to me after visiting his private bank branch to renew an FD. He walked out with a ULIP instead. The relationship manager had explained it as a “better FD” – same investment, higher returns, tax benefits. The client signed without reading the fine print.
It was only when he needed the money two years later that he discovered the truth: there was a 5-year lock-in, surrender charges of 25%, and his “investment” had not generated a rupee of return after charges in the first two years.
This is not an isolated incident. Insurance mis-selling through bank branches – formally called bancassurance – is one of the most persistent financial abuses in India. It has been documented by the Cobrapost sting of 2013, investigated by SEBI and IRDAI multiple times, and written about extensively. Yet it continues, because the incentive structure that drives it remains intact.
⚡ Quick Answer
Banks earn some of their highest commissions on insurance products – particularly ULIPs and traditional endowment plans. This creates a structural incentive for bank staff to push insurance to customers who come in for FDs, loans, or other banking needs. The result is widespread mis-selling. Protect yourself: never buy insurance inside a bank branch visit, never sign anything without reading the full policy document, and always evaluate insurance and investment products separately from banking services.
Why Banks Push Insurance So Hard
Banks earn commissions on third-party products they distribute – mutual funds, insurance, credit cards. Of all these products, insurance generates the highest upfront commission. A ULIP or traditional endowment plan sold through a bank can generate 25-40% of the first year premium as commission for the bank. A mutual fund SIP generates perhaps 0.5-1% annually. The economics are not comparable.
This is why the January-March quarter is peak insurance season in bank branches. It is the financial year closing period for most insurance companies. Branch staff face explicit sales targets for insurance. Those who hit targets are recognised; those who do not face pressure. Some private banks have had internal cultures where relationship managers used openly manipulative sales language to secure sign-ups.
The product most commonly mis-sold is the ULIP (Unit Linked Insurance Plan) – positioned as a superior FD or as a tax-saving investment. It is neither. A ULIP is an insurance product with an investment component, carrying high charges and long lock-ins. When evaluated honestly against a combination of term insurance and a mutual fund, it almost always underperforms.
“In 25 years of advising, some of my most difficult conversations have been with clients who came to me carrying ULIPs they did not understand. Not because they were unintelligent – but because a trusted bank official had described them in ways that obscured what they actually were.”
– Hemant Beniwal, CFP, CTEP | Founder, RetireWise
How Mis-Selling Actually Happens
Insurance mis-selling in banks typically follows predictable patterns that are easy to recognise once you know them.
The FD alternative pitch. “Our new product gives better returns than FD, and it is also life insurance. One product doing two jobs.” The product is a ULIP or endowment plan. The returns are neither guaranteed nor clearly disclosed. The “FD-like safety” does not exist.
The tax-saving pitch near March. “Under Section 80C, this product saves you Rs 46,800 in tax.” Technically true – but the same deduction applies to ELSS mutual funds which have a 3-year lock-in versus 5-year for ULIPs, no surrender charges, and significantly better historical returns. The tax saving is the same; the product quality is not.
The relationship pressure pitch. “Sir, I have been serving you for three years. This is my target for the month. Please just help me this once.” This is emotional manipulation. A financial decision made to help a bank employee’s target is never made in your best interest.
The bundling pitch. “For this home loan, we need you to take our credit life insurance.” Some bundling of insurance with loans is required by regulation and legitimate. Mandatory ULIP purchase as a loan condition is not – but it happens. SEBI and RBI regulations prohibit coercive bundling; if you feel pressured, you can refuse and escalate to the bank’s grievance cell.
Have you been sold insurance products you did not fully understand?
A RetireWise retirement plan review includes an audit of existing insurance products – separating genuine protection needs from investment products that may be serving the advisor’s interests more than yours.
IRDAI’s Freelook Period: Your Protection Window
Every insurance policy in India comes with a freelook period – 15 days for regular policies, 30 days for policies sold through distance channels (phone, online). During this period, you can return the policy and receive a full refund minus proportionate risk premium and administrative charges.
If you have recently bought an insurance policy you do not understand or did not intend to buy, check the date it was issued. If you are within the freelook period, write to the insurance company immediately requesting cancellation under the freelook clause. Keep a copy of the letter and ensure you receive written acknowledgement.
After the freelook period, your options are more limited – surrender charges apply in most products for the first 5 years. But even surrendering a mis-sold ULIP at a loss is sometimes better than continuing to pay premiums into a product that does not serve your goals.
How to Protect Yourself
A few simple rules protect you from insurance mis-selling in bank branches.
Never make a financial product decision in the branch itself. When you visit your bank, you are in a selling environment. Take any product information home, read it independently, and make the decision outside the branch.
Evaluate insurance and investment separately. Ask one question: “What does this product cost me if I want to exit in year 3?” If the answer involves surrender charges above 10-15%, the product is restrictive.
Check commission disclosure. IRDAI requires insurers to disclose the commission paid on any policy. You can ask for this information. A product with 35% first-year commission is structurally designed to benefit the distributor more than you.
Use a fee-based financial advisor for any significant investment or insurance decision. An advisor who earns a flat advisory fee rather than a product commission has no incentive to recommend a specific product over another.
Read – 5 Insurance Policies That You May Not Need
Read – 7 Financial Planning Mistakes That Are Costing You Retirement Security
Frequently Asked Questions
Is bancassurance always wrong? Are there good insurance products sold through banks?
Bancassurance is not inherently wrong – banks are legitimate insurance distributors and many offer genuine products. The issue is the conflict of interest when high commissions drive product recommendations. Term insurance sold through a bank at competitive premiums, with no investment component, is perfectly legitimate. The products to be cautious about are those that mix insurance and investment (ULIPs, endowment plans) and are sold without adequate disclosure of charges and lock-ins.
I bought a ULIP at my bank three years ago. What should I do?
First, understand exactly what you own: get the policy document, understand the fund value, the mortality charges being deducted, the premium allocation charges, and the surrender charges schedule. Compare your current fund value to total premiums paid. If the effective return is significantly negative and the product does not serve a genuine insurance need, evaluate whether surrendering (despite charges) and reinvesting in a more appropriate product makes sense over your remaining investment horizon. A financial advisor can help you run this calculation objectively.
How do I report insurance mis-selling?
You can file a complaint with IRDAI through the Bima Bharosa portal (formerly IGMS – Integrated Grievance Management System). Complaints about bancassurance can also be filed with the bank’s internal grievance cell and, if unresolved within 30 days, escalated to the Banking Ombudsman under RBI. For complaints about misselling specifically, keep all documentation – the policy illustration shown at time of sale, any written representations made, and the actual policy document. The gap between what was shown and what was issued is the basis of a mis-selling complaint.
Your bank branch is not a financial planning office. The person across the counter is a bank employee with sales targets – not a fiduciary advisor whose first duty is to your interests. That does not make every product they offer wrong. But it makes every product they offer worthy of independent evaluation before you sign.
Never buy a financial product in the branch. Take the brochure home. Read it. Decide independently.
Want an objective review of your existing insurance and investment products?
RetireWise provides an independent audit of your current financial products – identifying what serves your goals and what was sold for someone else’s benefit.
💬 Your Turn
Have you or someone you know been mis-sold an insurance product through a bank branch? What was the product and how did you discover the mis-selling? Share in the comments – your experience may protect another reader.
IN 2010 WHEN I WENT TO CITI BANK ATHENS BRANCH TO DEPOSIT ONLY 1000 EURO IN MY ACCOUNT(GREECE),THEY TOLD ME THAT YOU CAN DEPOSIT IN ANOTHER BETTER METHOD.BUT THEY DID NOT SAY ABOUT INSURANCE POLICY.THEY TOLD ME TO SIGN HERE AND THERE .I COULD NOT READ GREEK LANGUAGE I KEPT THE PAPERS SAFELY.FROM MY ACCOUNT THEY TAKE THEIR PREMIUM BUT I WAS WAITING FOR 3 YEARS TO TAKE BACK MY MONEY AS THEY TOLD.BUT AT LAST I UNDERSTOOD THAT I LOST 3000 EURO .I APPROACHED SO MANY ADVOCATES.THEY ASKED ME;DID YOU SIGN THE PAPERS?THEN WE CANNOT DO ANYTHING.I AM DESPERATED AND VERY SAD.HOW I HAVE BEEN CHEATED BY MY BANK EMPLOYEE.
Hi Civi,
Sorry to hear that – its a huge loss but bankers don’t care about clients. 🙁
Hemant …….. Heartfully appreciate all your efforts. Last few weeks, I have gone through many of your posts on various topics.
I have circulated and strongly recommended to my group of friends also to go through these valuable and useful posts.
Regarding Insurance, I had one query — My parents has taken a policy “ING LIFE PLUS” in the year 2007 with out any knowledge considering the words of agent/insurance advisor to reach his target of sales.
Do you have any idea of this, whether is it a good policy to pay further or Since the grace period of 5 years is completed — Can we close the same and take some other policy.
Thanks
Amar
Very well presented article and describes the situation in real terms. The Banks have gone one step ahead and insist on Insurance in lieu of FDs whenever the customer is in need of a locker. If some one makes a study of the lockers allotted in the past 4 years you would find more than 50% of the lockers were allotted on the basis of Dud Insurance policies where the Bank/ or its associate has made a fabulous earning.
Here is as follows:
1. birla sun life via dcb bank: Sold a policy in which processing charges are 40% for five years premium. Bought somewhere in ~2009. The guy was in contact with us since 2005 when he worked at hdfc bank near us.
2. kotak : something similar. Bought in 2007 maturity is on 2017, paid up period is first three years. Garantee of return date of maturity is 103% of amount invested. Current value -15%.
3.icici prudential: Same shit.
4. hdfc: Same shit 40% processing charges for the first year premium.
5. bajaj allianz : Same shit.
6. tata and reliance insurance: Same @#$%^ Shit !!!
All the shit we bought thinking that the poor man will earn something but when we discovered it, it was like the poor man looted us. Some people want to earn money and some wants dignity, this is a choice that only we can make !!!!
Moral: The culture of this industry has become that they successfully take the money from you thinking that they have earned it. This is the kind of money with which they feed and raise their kids with, this shout goes not only to the agents but the top level bankers who has structured this system !!!
You better donate your money if you are not buying LIC’s insurance.
Hi Hemant,
SBI launch below term Insurance.
SBI Life – Suraksha Plus (UIN 111N051V01)
Savings Bank Account Holders’ Scheme
Now i am think to bought it.
what you think? is this ok?
As you said in your article ““we will carry out audit to see if the rules have been violated”… we all know no rules have been violated as there are NO RULES”, RBI has cleared the 3 banks involved.
Lets take any ICICI, HDFC, or AXIS bank branch in your neighbourhood. Usually, its located in the posh colonies/market place/prime location. Rent part of such branches is somewhere around 5 to 6 lakhs per month. Now there is a huge staff from Branch manager/relationship manager/cashier etc; and their monthly salaries again would add up to Rs 12 to 15 lakhs. Next part is electricity bill and other sundry expenses. That means a single branch is running at the cost of Rs 30-50 lakhs or so. So how will the branch generate enough revenue to meet these expenses??
Simplest method for them is to sell INSURANCE and earn commission..By doing core banking, they cannot sustain themselves to run even a single branch in metro cities. There is not enough incentive or funds to be generated by selling MFs/lockers/loans to sustain such high expenses to run a branch..
One single step can kill two birds with a stone..Stop banks from selling insurance immediately; and it will end Mis-selling to about 85% and improve customer satisfaction in core banking..
But is someone out there listening/reading this??
Mr. Dhawal completely agree your view….your comments remind me about co-operative society…My native place is situated Semi urban area….people saving ratio is huge.. Five year ago here were only 5 to 6 co operative society ..now only Sirohi city there are 35 co-operative society ..I haven,t count village co. operative. society…the only reason is in India there is no regulator who regulate property price and their rent rates. the huge fd collection goes into property portion and rest little bit amount by loan. they give 14% to 15% return to customer..MY
Nobody are aware of DIGC. They think RBI give to licence so our money is hundred % safe ….. Real estate unorganized sector is also responsible this mis selling and malpractice.
We can crack it if financial let racy would be compulsory education in english…like Europe country .. god knows when will it be?
Excellent Article. Thank you so much
Hamantji,
Thanks for a nice article, and it was your article that has made me literate in financial matters, appreciate your selfless action, eye opener to many other like me.
thanks Hemant ji for this eye opener article,
I WANT TO SHARE MY EXPERIENCE WITH YOUR READERS. i regularly experiencing these type of calls from my bankers,and from so many agents of insurance houses with all new plans everytime and now itself.before 5 to 6 years i was also traped by them and invested lot of funds in all these products in which some are doing good (fortunately) and some are very bad and i have to do lot of paper works to get back my money.The agents and represntatives who approached me that time are no more working and they had got job in some other financial institutions.I think these are the common scenerio with all the investors.And when i had accumulated so many kgs. of papers (of mutual fund statements, policies)and found my self unable to deal with my portfolio which is not performing well,then i searched web to get some ideas how to manage my investments.And Finally one day i get one article from tflguide.com and thought that i got what i am serching for…..and that is MR. HEMANT.
now i surrenderd all my investment worries to him and got peace of mind about my investments and retirement.
So Friends,dont search lot of websites and get puzzled.Go for one good financial advisor and use your time to earn more funds …:)
Thanks Arun – you rightly said “The agents and represntatives who approached me that time are no more working and they had got job in some other financial institutions.”
Whenever someone is choosing an advisor – he should check his continuity plan, will he be there when you will need him most.
Dear Hemantji,
Thank you for the in depth article on Mis-Sellings by banks/bankers.
Banks are believed to be one of the trusted institution. These are the institutions where ones hard-earned money is kept supposing to be the safest place. Their advises and and suggestions are taken to be pure. But if they work unethically by mis-selling their products then there is no reason to take them as safe.
Hi Sk Ray,
Search for case of Suchitra Krishnamoorthy & one bank – you can see bankers are not leaving anyone.
This is incidence should prove blessing in disguise because so called experts and regulators were busy touting the role of bankers as impartial advisors on financial planning to their customers. The fact was everyone was a party to earn free commission without any knowledge, service and care for the customer. IRDA, SEBI shoud awkae as early as possible to stop this menace and ban the banks from selling any third party products. There are plenty of reasons for the banks to concentrate on their core business. You ask customer of any bank and you will find he is dissatisfied for some or the other issue with some or the other bank. These banks should be put to task to improve upon these things. Improve their loan disbursing capabilities, recovery of loans, management of funds, curtailing of wasteful expenditure, 10000% improvement in customerservice and forget this easy money. There is no loss to the public and investors. There are many better alternatives available and even if it isnot available it is better not to have it but nobody should be cheated. People blindly believe in what the bank staff says. Public has undue faith in bank staff. They do not challenge them. Poor people, semi urban, rural, small income earners etc. can not even dare to complain and question the bank staff. I am totally against the concept of selling any third product by any bank. For the development of financial product market we should create a different system. We have been doing the same for every such thing like industrial finance, agricultural finance, housing finance, factoring services, merchant banking services, regional rural banks, mahila banks etc. Let there be an organisation selling all the financial products like an agent or the distributor.
Hi DB,
I think this is too much to expect from our armchair regulators – they are bringing Investment Advisor regulation but even that is not foolproof.
Hi Hemanth,
Very good article. The swiftness with which you came up with this article speaks how passionately you are against this mis-selling of insurance by bankers. Kudos to your efforts. We all get cold-calls for investments from different ‘Private Banks’. After researching few of the products they suggested, i realized all their so-called investment plans are nothing but ‘insurance’ in the end. And it isn’t even proper insurance like a term plan — it’s ULIP, Traditional Insurance, Money Back etc etc. Name’s different, but the product never gives guaranteed return more than 4%.
Hi Phani,
Even I keep getting calls from my bankers & I can see the tactics they are using – definitely they can impress any common man.
Hi Hemant,
You have very rightly shown the picture. I have been through this several times.
The main focus of these guys is majorly on sales of insurance or on the credit cards.
I have worked with ICICI Prudential for 2 years as an advisor, rightly to say insurance agent.
Usually sales are done considering the commissions agent is going to get. Target completion is the goal of most of the agents. I left it in 2 years because it was not possible to be a success with all those ethics I carried. Some of the agents even get the policy application form filled and signed forcefully, saying that your first commission will be paid by them as a gesture.
Customers become sort of greedy and take the policy.
Only bankers or agents are not to be blamed for this mis-selling, people just take the policy without even checking what they are buying. They usually forget that Insurance is a subject matter of solicitation and its a very important step in financial planning.
Thanks for this article. I’ll share it with all who are in a hurry to save tax and are buying policies just due to 1 reason… tax saving.
Hi Nishi,
Thanks for sharing your story.
“Insurance is a subject matter of solicitation”
The dictionary meaning of Solicitation is “To Ask For”. Hence insurance is a subject that needs to be asked for by the consumers. This implies that the customers have to discuss with an Insurance Advisor regarding suggestions and professional advice suggest the right insurance products and services specially tailored or customized to meet an individual’s requirements. Hence, in short, it must be understood that Insurance Products and Services should not be SOLD but Solicited by the Consumers…… 🙁
Hi Hemant,
Very nice one. Yesterday, I happened to talk to a banker about surrendering the ULIP policies. He was at first trying to pursuade me that those policies are very good and need to give more time for the money to grow. Later, he said, he was short of the target of the year and it would impact his promotion and he pleaded me to provide some reference.
Hi Gayathiri,
This clearly shows the kind of pressure these people are having.
when I was insurance our Sm usually say koi co. kharab nhi hoti hain agent or employee co. ko kharab krte h..but fact we all know If he won’t sell the product co. kick back to his employee…
when we talk continue education program..
pharma co. is sponsor and dr. is participatory …. Do you really think they give enlightenment or education to dr.
they give only sales penetration,high commision,incentive…
Let come to the FPSB india. I respect to FPSB org.who have given new definitions to people think about planning rather then investing.
there r 10 to 12 member of FPSB Board ..
There r only one member Honorable suresh sadgopan is financial planner..
other are CEO, MD of Mf house , insurance industry, share broker.
do you thing they will encourage Financial planning profession?
I think H’le sadique and few good planner are spreading financial literacy and financial planning awareness in India.
FPSB Have very little bit effort compare to Mr. saddique and gd planner like u.
Our continue education program is conducted by MF ,insurance,share market,banking industry.
does it really worth?
It was relay Eye opener.
we blame to person but fact is institution indulge in malpractice.
Hi Sadashiv,
We should not expect much from institutions – its on individuals to prove themselves to clients.
Salesman will work one shade above or one shade below regulation bar.
Association & Designation will raise the bar a bit but we as professional should build our own standards, our own ‘best practices’.
Hello Hemant,
Really nice and eye-opening article this is..
I want to share opinion on “banker-miss selling”
I have worked with private bank earlier for 1 Year.. I actually know what pressure employee has to handle within “JFM” and otherwise also.. Now a days banks are more for selling and very less for core banking services.. many banking products selling and “cross-selling” and irresistible”login-days” are involved other than core operation and services.. and on the top of all that they call it “Financial Planning”. while selling the insurance or MF-SIP product many times under pressured employee miss-sale it. they make customer believe non-existing “benefits” of the product..
I really recommend, banker should think twice before selling the product as it leads to affect credibility of bank. at the end credibility matters the most when it comes to finance..
Hi Gargee,
Thanks for sharing your story… but I don’t know why still people have this faith on bankers. Every week we read mis-selling stories by bankers but no action by regulators. Buyer Beware.
Hemant!
Hearty congratulations for bring very hotly discussed topic yesterday in all news channels.I am sharing your link to few of my Bankers friends.
Thanks Prakash.
Very good article. Banks are presuurizing their epmloyees for unetical & illegal practices. Insurance product must be delinked with banks.
Hi Pawan,
In this budged they hinted that now banks can become insurance brokers – so they can sell polices from more than one insurance company – more confusion & problems for clients.
Bank pressure their emp to sell insurance.. If you cannot do that they will throw us.
Hi Hemant,
Very interesting article. Well I actually dont have an experience of insurance but couple of years back, one of the branch manger of a Nationalised bank offered me an SIP in Tata Mutual fund. Those days I did not have enough knowledge on mutual funds so did not proceed further with that.. 🙂
Hi Manoj,
So you were lucky that they suggested SIP – lot of PSU Banks sold New Fund Offers in 2006-07 as Fixed Deposits 🙁