Avoiding insurance traps: what red flags you should look for

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Insurance is supposed to safeguard you and your family, but the fact is that people often end up with policies that they don't necessarily require. Agents, motivated by commissions, often try to sell products that appear appealing but don't suit your true needs. For instance, a young earner who requires simple protection may be sold a costly ULIP, or a buyer who is purchasing health coverage may find that almost all diseases are excluded. Mis-selling needn't always imply fraud—it's just a matter of overselling features and concealing the terms and conditions.

The first caution is when a policy is sold as an "investment plus insurance" plan that will earn you very high returns. Insurance is not as much about making money, though, as about protection from risks. Another red flag is when the agents downplay waiting periods, exclusions, or limitation on claims. In health insurance, be careful if the agent insists on a policy without showing the list of network hospitals. In life insurance, also check if you are being sold more riders than you need—they inflate costs without necessarily inflating value.

One of the biggest traps in health Insurance is co-payment conditions that require you to pay a percentage of the bill, a part you may not know about until you claim. Sub-limits on the room rent or procedure can also substantially reduce your payout. In life Insurance, too many customers learn too late that they had purchased an endowment plan that pays meagre amounts compared to a term plan that is more comprehensive. These traps don't necessarily cancel the policy, but they render the policy poor value for money.

The easiest way to prevent mis-selling is to request all the details in writing. Avoid just relying on verbal promises by an agent—check the brochure and the wordings of the policy. Compare the same products on at least two or three insurers' sites before you finalise. Check the insurer's solvency ratio and track record on claim settlement on the IRDAI website. Above all, never put your signature on forms with blank columns that will be entered by another person later. If a policy is too hasty or the agent is too fast, back off—more often than not, trouble is looming.

If you realize you’ve bought the wrong product, don’t panic. IRDAI rules give you a “free-look” period of 15 days (30 days for online policies) during which you can return the policy and get a refund, minus nominal charges. If the mis-selling was more serious, you can file a complaint with the insurer’s grievance redressal cell, escalate it to the IRDAI, or even approach the Insurance Ombudsman. Acting early makes a big difference.

Yes. IRDAI allows insurers to take strict action against agents who mis-sell products, but you need to lodge a proper complaint.

Not necessarily. Many agents are knowledgeable and trustworthy. Just make sure you verify all documents yourself before signing.

Online buying reduces the chance of mis-selling since you’re in control, but you still need to carefully read exclusions and conditions.