A policy can be issued in a day, but the impact of a wrong recommendation can continue for years. A customer may buy a ULIP believing it offers fixed returns and easy access to money. Another may purchase a term plan without understanding the cover amount, policy period or importance of sharing complete health information. The premium gets collected and the policy is issued, so the sale may initially appear successful.
The real problem often appears later.
The ULIP customer sees the fund value move with the market or learns that the policy is not suitable for a short-term goal. The term insurance customer realises that the cover is too small for the family's needs or faces questions during a claim because important information was not recorded correctly.
At this stage, one unsuitable sale becomes much more than an unhappy customer. It creates complaints, additional servicing work, policy discontinuance, manager intervention and long-term damage to trust.
Mis-Selling Is Not Always an Obvious False Promise
The IRDAI Annual Report 2024-25 describes mis-selling as the sale of an insurance product without proper disclosure of its terms, conditions or suitability. It also advises insurers to assess product suitability, strengthen controls for different distribution channels and regularly study the causes behind mis-selling complaints.
For a ULIP, mis-selling may include presenting market-linked returns as guaranteed, ignoring the customer's time horizon or failing to explain how discontinuing premiums can affect the policy. For a term plan, the problem may involve recommending cover without understanding the customer's income and financial responsibilities. It may also include presenting the low premium without clearly explaining the policy term, exclusions or disclosure requirements.
The agent may not always intend to mislead the customer. In many cases, the agent simply does not understand the product well enough to explain it correctly. However, the effect on the customer can remain the same.
The Customer May Lose Money at the Wrong Time
A ULIP combines life insurance with market-linked investment. This means the customer needs to understand that the fund value can rise or fall and that the product should be considered according to the person's goals, risk comfort and investment period.
If a customer is saving for a goal that is only two years away, a long-term market-linked insurance product may not match that need. If the person later stops paying because the product was not understood, the customer may face financial disappointment at exactly the time the money was expected.
Term insurance creates a different risk when it is sold poorly. A customer may choose a low cover amount because the agent focused only on making the premium affordable. The policy may remain active for many years, but the family could still face a major financial gap if the insured person dies. The cost of mis-selling is therefore not limited to the premium paid. It can affect a child's education, household expenses, outstanding loans and the family's long-term financial security.
The Complaint Becomes a Business Cost
The latest IRDAI data shows that complaints linked to unfair business practices are not a small issue. The number of such grievances against life insurers increased from 23,335 in 2023-24 to 26,667 in 2024-25. Their share of total life insurance grievances rose from 19.33% to 22.14%.
Every complaint can require involvement from several people. The branch may need to collect documents and speak with the customer. The sales manager may need to review the original conversation. The grievance team may examine the proposal form, call recordings and benefit illustrations. Compliance teams may need to identify whether the case reflects an individual mistake or a wider training gap.
Even when the matter is resolved, the insurer has spent time and resources correcting a problem that better agent preparation might have prevented. There may also be refund requests, policy cancellations or corrective communication. These expenses may not appear under a line called "cost of poor training", but they still affect the business.
Policy Discontinuance Weakens Long-Term Value
A customer who feels surprised by a ULIP's performance may stop paying premiums. A term policyholder who does not understand the importance of continuous cover may allow the policy to lapse. In both cases, the customer loses protection and the insurer loses future premium income.
The cost also reaches the agent. An agent may receive credit for the first-year sale, but a discontinued policy does not create a stable book of business. It reduces renewal opportunities and weakens the relationship that could have led to referrals or future financial planning conversations.
IRDAI's regulatory approach places importance on improving persistence, reducing mis-selling and avoiding financial loss to policyholders. It also calls for periodic product training for intermediaries, distribution channels and insurer employees. This makes training a business requirement rather than an activity that ends after certification.
Trust Is Harder to Rebuild Than a Cancelled Policy
Insurance depends heavily on trust because the customer is paying today for a benefit that may be needed many years later. When one policyholder feels misled, the experience rarely stays between the customer and the agent. It may be shared with family members, friends, colleagues or on social media. The customer may also become suspicious of future insurance recommendations even when those recommendations are suitable.
This affects more than one agent. A poor product explanation can damage trust in the branch, insurer and insurance industry. Other agents then need to work harder to overcome the customer's fear of hidden conditions or exaggerated promises.
One way to reduce this fear is to move the conversation from selling to education. Amplispot's guide on using content to educate insurance prospects explains how useful content can help customers understand insurance before they are asked to make a decision.
Managers Spend More Time Correcting Than Coaching
Poorly trained agents often depend heavily on their managers. They may call during a customer meeting to confirm basic product details. They may submit incomplete proposal forms or use explanations that were never approved. Managers then spend their time correcting applications, resolving customer confusion and repeating the same product training.
This reduces the time available for meaningful coaching. Instead of helping an agent improve prospecting or build stronger customer relationships, the manager is forced to solve avoidable product mistakes.
The answer is not another long presentation filled with product features. Agents need practical examples that show how the product should be discussed.
For example, a ULIP learning scenario can show an agent speaking with a customer who wants guaranteed returns and may need access to the money within three years. The agent must identify that the customer's expectations may not match the product.
A term insurance scenario can show how to understand income, loans, family responsibilities and existing cover before discussing the sum assured.
Training Should Cover What Agents Must Say and What They Must Ask
Many product training programmes focus mainly on what the plan offers. Better training also explains which questions the agent should ask before recommending it. For a ULIP conversation, the agent should understand the customer's goal, expected investment period, risk comfort and ability to continue premiums.
For a term plan, the discussion should include income, dependants, liabilities, existing life cover and the period for which the family may need financial protection. Agents should also be able to explain important information in simple language. The IRDAI framework requires suitability analysis for savings-based insurance products and annuity products. It also requires a Customer Information Sheet that explains benefits, terms, conditions and coverage details transparently.
The document creates transparency, but the agent still needs to help the customer understand it. Short videos, customer situations and knowledge checks can make this learning more practical. Insurers can also use personalised policy education journeys to explain plan details, benefits, exclusions and next steps directly to customers in a simple format.
This gives the customer another opportunity to understand the product rather than depending only on what they remember from the sales meeting.
One Correct Sale Is Worth More Than Several Weak Sales
Mis-selling may create a quick premium, but it does not create a strong customer relationship. A suitable sale is more likely to stay active. The customer understands why the product was recommended, knows what to expect and is more comfortable approaching the agent for future needs.
Agents can also use interactive insurance quizzes and educational activities to make customers think about risk, financial responsibilities and protection gaps before the product discussion begins.
The goal is not to slow down sales. It is to improve the quality of the conversation so the customer, agent and insurer are working towards the same outcome.
The real cost of an untrained agent is not simply one incorrect explanation. It is the complaint that follows, the policy that does not continue, the manager hours spent correcting the case and the trust that may never return.
Frequently Asked Questions
1. What is insurance mis-selling?
Insurance mis-selling occurs when a policy is sold without proper disclosure of its terms, conditions or suitability. It may involve misleading statements, incomplete explanations or recommending a product that does not match the customer's needs.
2. How can a ULIP be mis-sold?
A ULIP may be mis-sold if market-linked returns are presented as guaranteed, the long-term nature of the policy is not explained or the product is recommended without understanding the customer's risk comfort and financial goal.
3. How can a term insurance plan be mis-sold?
A term plan may be mis-sold when the cover amount is chosen without assessing the customer's income, dependants and liabilities. It can also happen when the customer does not understand the policy term, exclusions or importance of complete disclosure.
4. Can mandatory agent training prevent all mis-selling?
Mandatory training provides an important foundation, but it may not cover every product conversation. Agents also need regular product updates, scenario-based practice and short knowledge checks that help them apply the information in the field.
5. How can insurers measure whether agents understand ULIPs and term plans?
Insurers can use customer scenarios, product quizzes, manager observations, complaint trends and persistence data. Training completion shows that an agent viewed the content, while practical assessment shows whether they can use it correctly.
Preventing mis-selling starts before the proposal form is completed. Agents need the product knowledge, customer questions and practical examples required to recommend suitable solutions with confidence.
Book a personalised demonstration with Amplispot to explore how short training videos, policy education and interactive learning can support responsible insurance conversations.
Discover how Amplispot helps insurance distribution teams strengthen product understanding and customer trust at amplispot.com.
