Senior citizen father paying premium to cover son’s life: A case of mis-selling?

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The mis-selling in insurance is quite prevalent. Since commissions are in endowment plans, some insurance agents promote such plans over pure term insurance. In some cases, they don’t explain the features to the policyholder. Should a 74-year-old father buy a life insurance policy for his 31-year old son? The logical answer to this is no. But, such mis-selling is found in insurance. Money9 received following query in this regard:

A banker approached my father (74) and with all wrong promises made him sign a POS (Point of Sale) endowment savings plan, using my brother’s name as the person insured who is 31 years old. Yearly premium is Rs 70,000. The second premium is due now. We want to decide what should be done. The surrender amount after one premium payment is zero. After two premiums (ie 1.45K) it is Rs 42,000. After2 premiums if we go for paid-up option, after 10 years we get Rs 2 lakh. Is this a good option?

– Mohit Jaiswal

Response by Shailesh Kumar, insurance head and co-founder, Insurance Samadhan

This is very common. Bank employees are always under pressure to sell insurance because the bank earns high commission from insurance companies. Each insurance company has bank assurance channel to promote insurance to customers of bank . Bank pushes insurance to people seeking loans, overdraft limits and other bank products .

There are many cases where insurance has been sold to senior citizens . As they are not insurable hence they are made proposers and insurance is given on life of adult children who are capable to buy insurance on their own . Insurance is a subject matter of solicitation but bank account holders get misguided because they trust bankers . In cases where insurance has been given to adult children , customer must check the following :

1. Did insured sign at the time of commencement of contract?

2. Did insured give consent in the form of a letter of agreement to pay regular premium in case of death of proposer?

3. Did the seller meet the life to be insured? There are many cases where life to be insured is not present in India and insurance has been made . Please note that if the agent has not met the insured person then contract can not be valid.

Your case also seems to be of mis-selling . Please ask yourself a few questions to confirm mis selling:

1) How old is your father and is he a proposer of policy? Please check the policy document .

2) Did your brother sign as life to be insured ? Was he present ?

3) Did your father receive verification call?

4) Is your father having regular income ? What is the income of your brother ?

5) Who is the agent in policy? Please check writing agent name in the policy document .

You should contest with insurance company. You should not pay renewal premium as agent would once again earn commission from the renewal premium . Thus you shall encourage mis-selling by paying renewal premium . After paying three premium , you shall get only surrender value which will be approx 50% of paid premiums .

So, we recommend you to complain to the insurance company, which is a professional and well managed organisation to take care of your grievance.