Buying insurance in India feels less like signing up for protection and more like walking into a rigged game for many. The dice are loaded, the rules hidden, and the house always wins.

From loans tied to unwanted policies to agents chasing fat commissions, what was meant to shield families has instead become a trap for many.

What drives this? Experts and data show a mix of high commissions, sales pressure, and weak financial literacy are to blame.

The Insurance Regulatory and Development Authority of India (IRDAI) reported 2,15,569 total grievances on its Bima Bharosa portal in 2023-24, with life insurance accounting for 1,20,726 complaints.

Worryingly, 20% of life insurance grievances in 2022-23 were related to unfair business practices, largely mis-selling. The Council for Insurance Ombudsmen received 52,575 complaints in 2023-24, including 31,490 in health insurance, up 21.7% year-on-year.

A deeper look reveals that 58% of all entertainable complaints before the ombudsman in 2022-23 were linked to mis-selling. This shows how widespread the problem is, making it the single biggest source of disputes in insurance.

THE COMMISSION GAME

A key driver of mis-selling in India is commissions, experts said in a documentary screened by 1Finance.

Research by 1 Finance Magazine showed India’s top 15 banks earned Rs 21,773 crore in commissions in FY24 from selling insurance and other products. HDFC Bank led with Rs 6,467 crore, followed by SBI (Rs 3,893 crore) and Axis Bank (Rs 3,320 crore). Axis Bank earned 25.2% of its income from commissions, IDFC First 23.6% and Yes Bank 23.3%.

Experts say this creates an incentive to push products, often at the cost of customer interest. At a 1 Finance roundtable, it was highlighted that up to 65% of the first-year premium can go as commission, which encourages agents and bank staff to push new policies aggressively.

TRAPPED IN MIS-SOLD POLICIES

A documentary screened at the roundtable, set to air in October 2025, showcased cases where customers were misled. Several buyers, with little financial literacy, were trapped into policies when they approached banks for loans. In some cases, loans were made conditional on buying insurance.

“The primary reason is the incentive structure. From senior officials to agents, everyone prioritises sales over customer needs. When customers come for a locker or loan, they are pressured into insurance they don’t need,” said Abhishek Kumar, Sebi-registered advisor and founder of Sahaj Money.

He added that weak oversight allows mis-selling to thrive, with front-loaded commissions encouraging “churning” — agents persuading customers to surrender old policies and buy new ones for fresh commissions. Since commissions are tied to premium amounts, buyers are pushed towards expensive investment-linked products rather than simple-term plans.

“Since commission is tied to premium amount rather than risk coverage provided, agents convince customers to buy expensive investment linked policies instead of cheaper term insurance that might better serve their protection needs,” said Kumar.

A BROKEN SYSTEM?

The numbers underline how damaging this is. Research shows 43.3% of all benefits paid by the top 10 life insurers go toward surrendered, withdrawn, discontinued, or lapsed policies.

The 61-month persistency ratio for leading insurers is only 51%, meaning nearly half of policies lapse within five years. Customers surrendering policies early often recover only a fraction of premiums, sometimes as low as 30% in the second year under IRDAI rules.

A survey by 1 Finance across 20 banks in 15 cities found that 57% of relationship managers admitted they were told to sell financial products regardless of suitability. This sales pressure creates a culture where targets matter more than customers’ long-term financial health.

Experts in the documentary argued for a review of the compensation structure for insurance sales. They said board members of banks and insurers must be held accountable to curb malpractice. Without structural changes, mis-selling may continue to erode trust in India’s insurance system, leaving lakhs of families financially vulnerable.

– Ends