New Delhi: Buying an insurance policy is often presented as a straightforward financial decision, but the Insurance Regulatory and Development Authority of India (IRDAI) has flagged several practices that can leave customers with products that do not match their needs or expectations.

In a consultation paper released on September 23, 2026, the regulator proposed a series of changes aimed at strengthening safeguards against insurance mis-selling. The proposals include documenting the suitability of certain policies, identifying the individual who sold each policy, making information about mis-selling incidents available to customers and recovering commissions when mis-selling is established.

The consultation paper, titled “Recalibrating Economics of Insurance Distribution”, is open for public comments until October 25, 2026. The measures are proposals at this stage and could change before final regulations are issued.

What does insurance mis-selling mean?

Insurance mis-selling broadly refers to selling a policy using misleading, incomplete or unsuitable information, resulting in a product that does not match the customer’s requirements or understanding.

IRDAI has identified examples such as presenting insurance as a fixed-income deposit or high-return investment, selling regular-premium policies without adequately explaining the consequences of discontinuing payments, and recommending products without considering a customer’s ability to pay.

The regulator has also highlighted cases involving unit-linked insurance plans, or ULIPs, being sold to risk-averse customers or people beyond their working age without adequately explaining charges, market risks and uncertainty of returns. Another example involves persuading customers to surrender an existing policy and purchase a new one on the promise of better returns.

Check what the policy actually promises

One of the simplest ways to identify a possible mismatch is to compare what was verbally promised with the actual policy documents.

Customers should examine the policy type, premium amount, premium-paying term, policy duration, maturity benefits, surrender conditions and whether the returns are guaranteed or market-linked.

For example, if a customer was told that a policy would provide fixed returns but the policy documents show that the benefits depend on market performance, the difference deserves closer examination.

Similarly, a customer who was told that premiums would need to be paid for only a few years should verify the actual premium-paying term in the policy document.

Check the premium-paying commitment

The premium-paying period is particularly important because stopping payments prematurely can have significant financial consequences.

A policy may have a long-term duration even when premiums are payable for a shorter or different period. Customers should therefore distinguish between the policy term and the premium-paying term.

IRDAI’s proposed suitability framework seeks greater accountability from insurers and distributors when products are sold without properly assessing whether the customer can sustain the premium commitment.

The consultation paper proposes that, for life insurance sales above a defined ticket size, insurers and distribution entities should conduct and document a needs and suitability analysis supported by an audit trail. It also says that simply obtaining a customer’s consent or signature should not by itself absolve the insurer or intermediary of responsibility for selling an unsuitable product.

Be careful with guaranteed returns

Customers should clearly establish whether a benefit is guaranteed, projected or market-linked.

This distinction becomes especially important when insurance products are presented as investment alternatives. A market-linked policy does not provide the same certainty as a fixed-return product.

The regulator has specifically cited the practice of selling insurance products as fixed-income deposits or high-return investment products as an example of potential mis-selling.

For ULIPs and other market-linked products, customers should also understand investment risks, mortality charges and other applicable costs before making a decision.

Look at surrender and exit conditions

Customers who discover that a policy does not meet their needs only after several years may face losses if they exit early.

IRDAI’s consultation paper points to premature surrender as one of the indicators associated with concerns around insurance sales and persistency. According to data cited in the paper, life insurers paid ₹6.3 lakh crore in benefits, of which ₹2.33 lakh crore, or 37%, related to surrender payouts. Death claims accounted for ₹47,000 crore, or about 7% of the total.

The figures do not by themselves establish that every surrendered policy was mis-sold. However, IRDAI has linked high levels of premature exits and low persistency to possible concerns around solicitation and customer understanding.

Customers should therefore check surrender values and exit conditions before buying a policy rather than considering them only when they need to discontinue it.

Proposed tracking of insurance salespersons

One of the notable proposals is to link the identity of the salesperson to the policy sold.

IRDAI has proposed tagging the functional identity of the salesperson with the policy and placing information about mis-selling incidents in the public domain as part of the concerned person’s performance record.

The objective is to give prospective customers additional information about the sales history of an individual before purchasing an insurance product.

The regulator has also proposed commission clawbacks where mis-selling takes place.

This would shift some accountability towards the person or entity involved in selling the policy rather than leaving the customer to bear the consequences of an unsuitable purchase.

Volume-linked incentives also under scrutiny

IRDAI has proposed restricting volume-linked and reward-linked incentives for bank and NBFC employees selling insurance.

The consultation paper notes that incentives such as domestic or foreign trips, luxury gifts, milestone bonuses and contest rewards can create conflicts between sales targets and customer suitability.

The broader distribution reforms also seek to address high distribution costs and the way commissions and other payments influence insurance sales.

IRDAI has proposed changes to commission structures and a phased reduction in insurers’ Expense of Management limits. The regulator is also looking at compulsory bundling of insurance with other financial products and services.

What policyholders can check today

Customers do not have to wait for the proposed reforms to review an existing policy. A basic check can help identify whether the product matches what was originally explained.

Policyholders should verify:

  • The exact type of insurance policy purchased.
  • The total premium and frequency of payments.
  • The premium-paying term and overall policy term.
  • Guaranteed benefits versus projected or market-linked returns.
  • Maturity benefits and conditions attached to them.
  • Surrender value and early-exit conditions.
  • Charges applicable to the policy.
  • Exclusions, waiting periods and other restrictions where applicable.
  • Whether the information in the proposal form accurately reflects their circumstances.
  • Whether the policy matches the financial objective for which it was purchased.

Customers should also retain brochures, benefit illustrations, emails, messages and other documents provided during the sale. Such records can become important if there is a dispute over what was represented.

What to do if you believe a policy was mis-sold

The first step is to raise the complaint with the insurer’s grievance redressal officer and provide supporting documents.

IRDAI’s Bima Bharosa system allows policyholders to register and track complaints. The regulator says complaints should first be taken up with the insurer, and if the response is unsatisfactory or the matter is not resolved within the prescribed period, the policyholder can approach IRDAI through Bima Bharosa.

The Insurance Ombudsman is another avenue for eligible disputes. Policyholders should keep the complaint, acknowledgement, policy documents and correspondence as part of their records.

IRDAI’s grievance mechanism is designed to provide a centralised system through which complaints can be tracked and reviewed.

IRDAI proposals are not yet final rules

The proposed reforms represent a potential change in how insurance products are distributed and how responsibility for sales is documented.

For customers, the central lesson is to distinguish between what a salesperson says and what the policy documents actually guarantee. A policy’s premium commitment, benefits, risks and exit conditions should be understood before purchase.

IRDAI has invited comments from stakeholders and the public until October 25. The final regulatory framework may therefore differ from the proposals contained in the September consultation paper.