The Bank RM, the Retirement Corpus and a 'Relationship Gift'
Sunita, 58, retired from a state transport corporation in November 2024 with a ₹18 lakh terminal corpus, which is her entire savings for medical contingencies; her pension covers only household expenses. In February 2025, a relationship manager at a bank that is a registered corporate agent for three life insurers sells her a 20-year unit-linked policy with an annual premium of ₹1,80,000 payable for 10 years. He tells her the fund "has historically returned 14% and is effectively guaranteed to beat fixed deposits", and that she can withdraw the entire amount whenever she likes. She signs a benefit illustration showing 8% and 4% gross scenarios, with a footnote that units can go down as well as up. To close the sale the same day, the RM pays ₹18,000 of the first premium himself as a "relationship gift". She pays the second premium only after her son reads the policy document. She now wants out.
1. Identify the regulatory and conduct breaches in this sale and the provisions engaged.
Read the worked answer
1. Misrepresentation of returns. A benefit illustration may only show the gross and net yields at the rates prescribed by the regulator, with the statutory legend that the figures are not guaranteed. An oral assurance that the fund "effectively guarantees" 14% contradicts the document the customer signed and is a misrepresentation of a unit-linked product whose investment risk sits with the policyholder.
2. Rebating. The RM paying ₹18,000 of the premium is a rebate or inducement. Section 41 of the Insurance Act, 1938 prohibits any person from offering or accepting a rebate of premium as an inducement to take out a policy, and the penalty on the person giving or abetting the rebate can extend to ₹10 lakh. It also breaches the agent's code of conduct and, for the bank, its obligations as a registered corporate agent.
3. Suitability and need analysis. A ten-year commitment of ₹1.8 lakh a year against an ₹18 lakh corpus, locked in for 20 years, for a 58-year-old whose savings are her medical buffer, is a mismatch that a documented need analysis should have flagged. The suitability record, not just the signature on the illustration, is the evidence IRDAI will look at.
4. Point-of-sale disclosure. The statement that she can withdraw the entire amount whenever she likes is wrong: unit-linked policies have a lock-in and surrender rules, and partial withdrawals are subject to conditions.
2. Does the rebate make the policy void, and what realistic exit routes does Sunita have now?
Read the worked answer
The policy is not void. Section 41 penalises the giving and accepting of a rebate; it does not render the contract unenforceable, and a policyholder cannot use her own participation in the inducement to escape the contract. The premium has been received by the insurer, so the requirement that risk commences only on receipt of premium is satisfied.
Free look is closed. The free-look right runs for a defined short period from receipt of the policy document. Sunita is now past it, so she cannot simply return the policy for a full refund of premium.
Surrender and discontinuance. Unit-linked policies permit surrender after the lock-in period, on payment of the fund value; before lock-in, discontinuance proceeds are held in a discontinuance fund and paid out at the end of the lock-in. Surrender recovers the fund value but crystallises the charges and any market loss, so it should not be presented as a full remedy.
Mis-selling complaint. She should write to the insurer's grievance redressal officer, describing the oral assurance, the rebate and the absence of a need analysis, and ask for the call/meeting records and the suitability sheet. If unsatisfied, she can escalate to IRDAI's Bima Bharosa portal and then to the Insurance Ombudsman under the 2021 Rules, whose award is capped at the prescribed monetary ceiling and is binding on the insurer if she accepts it. Consumer commissions remain available. Realistic relief is compensation or a restructured/refunded policy, not automatic voiding.
3. The insurer says the RM was the bank's employee and that it is not responsible for what he said. Assess that defence.
Read the worked answer
The defence is unlikely to hold, for three reasons.
Agency. A corporate agent appointed by the insurer acts for the insurer in soliciting and servicing that insurer's business. The bank is a registered corporate agent, and the RM was acting in the course of that agency and within its apparent authority when he sold this policy, took the proposal and handled the premium. Statements made within that authority bind the principal, and the insurer cannot take the benefit of the sale while disclaiming the conduct that produced it.
Regulatory responsibility. The insurer is responsible for the conduct of its distribution channels, including training, certification, monitoring, commission-linked incentives and the suitability documentation it requires. Regulators routinely hold the insurer accountable for mis-selling by bank channel staff, precisely because the customer dealt with the bank only because the insurer appointed it.
Evidence. The bank's records - the meeting log, the benefit illustration signed on the day, the source of the ₹18,000 remittance, the premium payment trail - will show whether the sale was an isolated act or a pattern. A single unexplained premium payment by staff is usually enough to shift the argument to quantum of compensation rather than to liability.
The practical consequence is that the insurer should investigate the channel, not merely the customer's complaint, and should be prepared to compensate while recovering from the bank under its corporate agency agreement.