Banks Exploit Senior Trust: Mis-sold Insurance Policies Cost Billions
Overview
Senior citizens in India are falling victim to mis-sold insurance policies, often pitched by banks as safe alternatives to FDs. Driven by high commissions, financial intermediaries push unsuitable products with long lock-ins and low returns, exploiting the trust and limited financial literacy of the elderly. This practice leads to significant financial losses for retirees and raises serious regulatory concerns amid a surge in customer grievances.
The Erosion of Trust
Banks in India are increasingly exploiting the trust of senior citizens, pushing unsuitable, high-commission insurance products instead of traditional savings schemes. This practice targets retirees who frequently visit branches for routine transactions, turning everyday interactions into sales opportunities. The outcome is significant financial losses for the elderly and a surge in regulatory complaints, highlighting a systemic issue.
Incentive-Driven Sales
The core driver is incentive-based selling. Financial intermediaries, including bank staff, earn substantial commissions on insurance products, often far exceeding those for mutual funds. Distributors can earn between two and eleven times more in first-year commissions. This lucrative structure encourages the mis-selling of policies as 'FD-like' or 'guaranteed' to trusting seniors, despite long lock-in periods and low effective returns, sometimes as low as 4-6% compared to government-backed schemes.
Rising Grievances
Regulatory data confirms a sharp increase in such practices. Complaints classified as 'Unfair Business Practices' rose by approximately 14% to 26,667 in FY25, now accounting for over 22% of all grievances against life insurers. In FY24, the top 15 listed banks collectively earned around ₹21,773 crore in commission income from distributing third-party products, with commission income exceeding a quarter of total income for some institutions.
Proposed Safeguards
Experts argue that existing safeguards are often mere procedural checkboxes. They propose classifying sales to senior citizens as high-risk, triggering mandatory financial underwriting. Additional measures suggested include separate recorded consent calls for family members named as life insured and automatically flagging sales of long-term policies to the elderly where returns begin at advanced ages. Stronger accountability through public disclosure and genuinely punitive penalties is deemed essential.
