Mis-Selling Life Insurance

What is mis-selling?
By definition, mis-selling entails selling a product by giving a wrong picture of a product.
It may include giving wrong information, giving unrealistic information, benefits or not giving full information about the product.

Insurance is a business of selling commitments and the value of insurance manifests when a financial promise is fulfilled by the insurer.


Unfortunately, in some cases, commitments are broken because products are mis-sold.
Mis-selling is not unique to insurance. It happens in various lines of businesses (loans, investment products, pharmacy, hospitality, etc.), but insurance being an intangible service – the principle of caveat emptor (let the buyer beware) must always prevail.


Oftentimes the intermediary (person selling an insurance product on behalf of the insurance company) does not fully explain the policy details to the customer. However, at times, the buyer (insured) is in a hurry to care to read about the product details and the fine print.


There have been cases reported to the authority where the agent deliberately misguided the buyer.


A common example in life assurance is where an insurance agent sells a policy with a term of 10 years but, tells the policyholder that the same sum assured can be redeemed after two or three years as an option.


From the insurer’s perspective, the two or three years in the policy may refer to a clause on surrender value, yet the unsuspecting policyholder may not be aware.


For the insurance agent, normally this is not a problem, as they will have earned their commission, but at the expense of ‘cheating’ or misinforming the unsuspecting policyholder.


Consequences of mis-selling

Mistrust
Often the driving factor for mis-selling by insurance agents is to earn higher commissions and reach sales targets faster. However, this way of doing things eventually leads to mistrust between the insurance company/agent and the insuring public. A customer who has been ‘cheated’ before is unlikely to trust an insurance agent again, however good the policy may be.

Poor reputation
Some insurance policies, particularly life policies, are usually sold on the basis of good reputation or experience resulting from using the product. A poorly sold or mis-sold policy, therefore, means that insurance companies can have challenges in selling policies to prospective customers. Often, these instances lead to a decline in insurance policies sold just because of bad publicity by friends, relatives etc, as prospective customer’s are made to lose faith.

Policy Lapse
Usually, a policy is said to lapse if it does not receive premiums at the expiry of the grace period. In most insurance contracts, the grace period runs for a period of 30 days, after which the insurer is at liberty to lapse the policy. Lapsing policies has serious implications for both the insurance company and the policyholder. For the policyholder, a lapsed policy means benefits which were payable under the insurance contract will no longer be payable.
Furthermore, any premiums paid on the policy prior to policy lapsation will be forfeited to the insurer.