Insurance vs Investment: How Mis-selling Tricks You into Poor Returns!

Insurance and investment—two pillars of financial planning—often get tangled together.

And when they do, the results can be financially painful.

Have you ever heard someone say, “This plan gives you guaranteed returns AND full protection!”?

It sounds perfect, doesn’t it? But that’s exactly how many people get trapped.

In India, financial awareness is improving. Yet, mis-selling and mis-buying are spreading even faster.

Agents aggressively promote products that benefit them, not you.

And buyers—trusting the wrong advice—end up with plans that barely grow their money.

So, how do you protect your wealth from being lost to poor advice and hidden traps?

Let’s break it down step by step.

Table of Contents

1. What Exactly Is Mis-selling (and Mis-buying)?
2. Real-Life Case: How Guna Lost Big to a “Safe” Plan
3. The Problem with Endowment & ULIP Policies
4. Banking Mis-selling: How Pressure Breeds Deception
5. Health Insurance: The Hidden Clauses No One Explains
6. Mutual Funds: The Most Common Mis-selling Traps
7. How to Avoid Mis-selling and Mis-buying
8. Filing a Complaint: What to Do If You’ve Been Cheated
9. Final Thoughts: Knowledge + Guidance = True Financial Protection

1. What Exactly Is Mis-selling (and Mis-buying)?

Mis-selling means selling a product using false promises or half-truths.

For example— “Sir, this plan gives 12% returns with guaranteed safety!” when the reality is a 4% endowment policy.

Mis-buying, on the other hand, happens when buyers purchase something they don’t understand or don’t need.

Maybe out of fear, peer pressure, or blind trust.

In both cases, the result is the same:

You lose money, time, and peace of mind.

And it’s not limited to one category—

You’ll find mis-selling in life insurance, health insurance, mutual funds, and even fixed deposits linked to banks.

2. Real-Life Case: How Guna Lost Big to a “Safe” Plan

Let’s look at Guna, a 30-year-old who wanted life insurance to protect his family.

An agent convinced him to buy an Endowment Plan—₹50,000 premiums per year for 28 years—with a life cover of ₹10 lakhs.

After 28 years, he would’ve invested ₹14 lakhs and received around ₹55 lakhs—assuming a 5% return.

Sounds decent? But here’s the catch.

If Guna passed away early, his family would receive only ₹10 lakhs—hardly enough even for a year’s expenses.

Now let’s see what would’ve happened if he’d made a smarter choice.

If Guna had bought a Term Insurance policy (₹1 crore coverage for ₹15,000/year) and invested the remaining ₹35,000 every year in an Equity Mutual Fund (12% return), after 28 years, his investment could’ve grown to ₹72 lakhs, with ₹1 crore protection for his family.

That’s the difference between being sold and being informed.

Guna wasn’t unlucky—he was mis-sold.

3. The Problem with Endowment & ULIP Policies

So why do agents keep pushing Endowment and ULIP plans?

Simple: commissions.

Endowment and ULIP policies combine insurance and investment—creating confusion and high earnings for agents.

Here’s the reality check:

• Endowment Plans: Return around 4–6%, often below inflation.
• ULIPs: Loaded with charges, lock-ins, and poor flexibility.
• Term Insurance: Offers 10–20x more coverage for a fraction of the cost.

When someone offers you “insurance + investment + guarantee,”

remember—it usually means low return + long lock-in + poor coverage.

Would you buy a single product that tries to be everything—and ends up being nothing great?

4. Banking Mis-selling: How Pressure Breeds Deception

Even banks—once trusted for safety—have joined the mis-selling bandwagon.

A nationwide survey of 1,655 bank Relationship Managers (RMs) revealed shocking truths:

• 57% admitted pressure to sell unsuitable products to meet sales targets.
• 85% didn’t know the difference between Regular and Direct mutual fund plans.
• 67% couldn’t explain Term Vs Endowment policies correctly.
• 75% genuinely believed ULIPs are better than mutual funds!

With this level of misinformation, mis-selling becomes inevitable.

Investors end up buying low-return, long-lock-in products that fail to meet their financial goals.

And when the truth hits years later—it’s too late to undo the damage.

5. Health Insurance: The Hidden Clauses No One Explains

Health insurance mis-selling is a silent epidemic that strikes when you’re most vulnerable.

You might’ve heard an agent confidently say,

“Sir, you can claim for any disease, anytime!”

Sounds comforting, right? But in most cases — it’s far from the truth.

Agents often leave out the fine print that truly matters, such as:

• Waiting periods: Most policies don’t cover pre-existing diseases for the first 2 to 4 years.
• Room rent limits: If your room rent exceeds the limit, your entire hospital bill gets proportionately reduced.
• Permanent exclusions: Certain illnesses, procedures, or conditions are never covered.

So when does the bitter truth come out?

Usually during a medical emergency — the worst possible time to realize your policy doesn’t protect you fully.

Pro tip: Always get every detail in writing, preferably on official letterhead or through an email from the insurer.

If the advisor hesitates or avoids putting details in writing, that’s your red flag.

Remember — in health insurance, what’s not said can cost more than what’s paid.

6. Mutual Funds: The Most Common Mis-selling Traps

Mutual fund mis-selling has evolved — it’s no longer loud and obvious; it’s subtle and persuasive.

You might’ve come across claims like:

“This new fund guarantees 20% returns!”

“Switch your old SIP to this one — it’s performing better!”

Here’s the truth:

• SEBI and AMFI regulations strictly prohibit any guarantee of returns in mutual funds.
• The realistic long-term expectation from equity mutual funds is around 10–12% per annum.

But the problem doesn’t stop there.

Mis-buying also happens when investors jump into funds based on:

• Short-term returns (“It gave 25% last year!”)
• Peer pressure (“My friend invested in this scheme.”)
• Aggressive marketing (“NFO — limited time offer!”)

All these lead to one result — investments without purpose or understanding.

✅ To avoid mis-selling:

• Invest only after identifying your goal, time horizon, and risk appetite.
• Don’t chase returns; chase consistency and suitability.
• Review fund expense ratios, past volatility, and fund manager tenure before deciding.

Because the best mutual fund is not the one giving the highest return — it’s the one best aligned with your goals.

7. How to Avoid Mis-selling and Mis-buying

Think of this as your financial safety checklist — simple, but powerful.

Product Type	What to Verify Before Buying	Key Tip
Life Insurance	Coverage amount, surrender value, exclusions	Never mix insurance with investment
Health Insurance	Waiting periods, room rent limits, claim process	Confirm all benefits in writing
Investment Schemes	Returns, lock-in period, liquidity, tax impact	Ensure it aligns with your goals
Mutual Funds	Fund category, risk level, expense ratio	Match it with your time horizon
ULIPs/Endowment Plans	Charges, fund switching rules, real returns	Avoid if you need flexibility or liquidity

Smart Investor Tip:

• Term Plan → for protection.
• Mutual Fund / FD / PPF → for investment.Keep them separate, and you’ll stay safe.

When you buy a combo product, you’re usually paying extra for confusion.

8. Filing a Complaint: What to Do If You’ve Been Cheated

If you suspect mis-selling, don’t stay silent. The law is on your side — you just need to act.

Here’s where and how to file a complaint:

Regulator	Complaint Type
RBI Ombudsman	Banking / NBFC mis-selling (e.g., forced insurance, bad investment advice)
IRDAI Ombudsman	Life or Health Insurance
SEBI (SCORES)	Mutual Funds or Stock Market Products

✅ Keep ready:

• All emails, receipts, call recordings, and policy documents
• Details of the advisor or intermediary who sold the product
• A short written explanation of your grievance

Once you submit, the respective regulator usually takes 30–60 days to respond.

And in most cases, customers get refunds or corrections when the evidence is strong.

9. Final Thoughts: Knowledge + Guidance = True Financial Protection

In today’s world, financial products are designed to look attractive — but not all are designed for your benefit.

That’s why financial literacy isn’t optional anymore — it’s your first layer of defense.

But even with awareness, execution can be tricky.

That’s where a Certified Financial Planner (CFP) plays a crucial role.

A CFP acts as your unbiased financial guardian — someone who works for your goals, not commissions.

They help you identify the right mix of insurance, investments, and protection — all tailored to your life stage and aspirations.

So, before you sign the next “guaranteed plan” or “limited-time offer,” pause and ask yourself:

“Is this product serving my life goals — or someone else’s sales target?”

Because in personal finance, the smartest investment you can make…

is in clarity.