How are life insurance products missold to disadvantaged groups?

 How are life insurance products missold to disadvantaged groups?

These unethical acts are more likely to affect the elderly and those with modest incomes.

SUMMARY: People who are elderly or have low incomes are often more vulnerable to deceptive methods such as misrepresenting insurance plans.

Insurance salespeople often target the elderly, stay-at-home moms, and other low-income demographics.

When buying an insurance coverage as a financial instrument, people need to exercise caution and awareness.

Regrettably, deceptive tactics and misrepresentation in several industries are widespread problems that impact a large number of customers. For a variety of reasons, certain demographics—elderly people and those with low incomes, in particular—may be especially vulnerable to these immoral actions. Here, we investigate the reasons for these groups' increased susceptibility to exploitation as well as the safeguards that have been put in place to prevent it.

Low-income or elderly populations are often more vulnerable to deceptive methods and insurance policy misselling. Seniors, homemakers, and other low-income populations are often the targets of insurance firms and brokers in the following ways:

Senior citizens: The elderly are often the main targets of insurance mis-selling because of cognitive deterioration, a lack of technical know-how, or a lack of familiarity with the evolving market.

The majority of elderly people have fixed deposit accounts and savings accounts at their banks. Typically, bank staff attempt to upsell them regular premium insurance packages when they renew their fixed deposits. They often fail to understand, nevertheless, that the elderly person becomes their proposer and that the goods are sold under their family members' names. Shilpa Arora, COO and Co-Founder of Insurance Samadhan, stated, "In our experience, senior citizen account holders typically sign the proposal form before proper verification as they trust their bank."

Individuals with low incomes: Because they have less access to high-quality financial education, low-income populations are often the most susceptible. This makes them vulnerable to abuse as they could not completely understand the nuances of complex financial instruments, loan agreements, or investment schemes. People with lower incomes are also often under pressure to accept services that they cannot afford, mostly because they may believe that there are no or few other alternatives.

"People who need loans to build assets or invest in small businesses are frequently offered for sale a policy with the allurement of credit," Arora said. Insurance brokers often contact small retailers, companies, farmers, and homemakers in need of financing, luring them in with the prospect of interest-free loans when they buy a life insurance policy. Seldom do these salespeople walk them through the package and persuade them that the premium would act as the loan EMI. Consequently, many who are insured think that their premiums are being used to pay back their loans.

Housewives: The majority of housewives who store their money in fixed-rate accounts get regular premium-paying life insurance policies. According to Arora, "most people find it appealing when agents ask housewives to pay for three years in order to generate tax-free high returns." However, because to their lack of financial literacy, they get misled by the insurer, who often fails to disclose that the policyholder must pay the premium on time to avoid losing their investment. They are informed that if they pay their premium for two to three years, the surrender value would be comparatively less than what they might have earned by making the same investment for the same amount of time."

How should you proceed? 

When buying an insurance coverage as a financial instrument, people need to exercise caution and awareness. They should understand that the purpose of life insurance is financial protection, therefore they shouldn't anticipate large profits.

On the other hand, a number of safeguards are in place to lessen the effects of deceptive advertising and unethical business activities on these susceptible groups. The regulatory bodies have devised a comprehensive and organized structure to guarantee the equity and openness of the financial markets. Programs for financial literacy are also offered by governmental and non-governmental organizations to educate the public about complicated financial products, their rights, and the channels of recourse in the event that such rights are infringed. For example, you may do the following if you believe you were misled into purchasing an insurance policy:

Filing a complaint against mis-selling is required if an elderly or low-income person believes they were misled. This report should be sent to the insurance firm as soon as possible, ideally within the 15-day free look period that begins when the policy document is received.

Examine the policy manual: People need to carefully read the tiny print, and if something is promised but isn't addressed, they may submit a complaint to get their premium money back.

File a complaint on the Irdai platform: People may file a complaint on the Bima Bharosa platform of Irdai, and the firm will address it in a matter of 14 days.

If customers are not satisfied with the answer they received from the firm and Bima Bharosa, they have the option to get in touch with the Insurance/Banking Ombudsman. They may file a grievance at the consumer court if all else fails, according to Arora.