In India, life insurance is meant to be a safety net. Instead, it has become a trap for millions. High commissions, aggressive sales pressure, and weak financial literacy are fueling a mis-selling crisis, leaving families financially vulnerable while insurers and banks reap billions.
A System Tilted Against Policyholders
For many Indians, buying life insurance no longer guarantees protection it often feels like stepping into a rigged game. Research shows that 43.3% of all benefits paid by the top 10 life insurers go toward surrendered, withdrawn, or lapsed policies, rather than protecting families in times of crisis.
The numbers are stark: the 61-month persistency ratio for leading insurers is only 51%, meaning nearly half of policies lapse within five years. Customers who surrender policies early often recover only a fraction of what they paid, sometimes as little as 30% in the second year.
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Meanwhile, agents and bank staff are incentivized to push high-premium products aggressively. A 1 Finance survey across 20 banks in 16 cities found that 57% of relationship managers admitted they were told to sell financial products regardless of suitability.
The Commission Trap
At the heart of this problem lies India’s commission-driven sales model. Agents can pocket up to 65% of the first-year premium as commission, according to industry data. This creates a culture of relentless sales pressure, where customer interest takes a backseat to targets.
A documentary screened at a financial roundtable in September 2025 revealed how buyers were misled into purchasing policies when applying for loans. In some cases, banks made loans conditional on buying insurance. “From senior officials to agents, everyone prioritizes sales over customer needs,” said Abhishek Kumar, a SEBI-registered advisor.
This structure also fuels a practice known as “churning” persuading customers to surrender old policies and buy new ones solely to generate fresh commissions. Instead of affordable term plans, many buyers are pushed toward costly investment-linked products, leaving families exposed when protection is needed most.
A Broken Promise
The Insurance Regulatory and Development Authority of India (IRDAI) recorded 2,15,569 grievances on its Bima Bharosa portal in 2023–24, with life insurance accounting for more than 1.2 lakh complaints. Alarmingly, 20% of all life insurance grievances in 2022–23 were linked to unfair practices, largely mis-selling.
Health insurance complaints are rising too — up 21.7% year-on-year. The Council for Insurance Ombudsmen handled over 52,000 cases in 2023–24, with more than half linked to mis-selling.
The financial stakes are staggering. India’s top 15 banks earned ₹21,773 crore in commissions in FY24, with HDFC Bank leading at ₹6,467 crore, followed by SBI (₹3,893 crore) and Axis Bank (₹3,320 crore). For some banks, commissions accounted for more than a quarter of total income.
Experts warn that without structural reforms, mis-selling will continue to erode public trust in India’s insurance system. Families seeking protection will remain trapped in a cycle of lapsed policies, financial loss, and broken promises.
“Insurance was meant to shield households,” one analyst said. “Instead, it has become a product of exploitation, where the house always wins.”
