An endowment mis-sold by a POSP authorised only for pure term
Meena, 58, a retired government school teacher in Mysuru, receives a pension of ₹26,000 a month and holds ₹7 lakh in a fixed deposit. In November 2025 a POSP Life appointed by PQR Life sells her a 20-year non-linked endowment: annual premium ₹1,50,000, sum assured ₹15 lakh, with an illustration showing a maturity value of about ₹27 lakh. She is told it is 'like an FD with free insurance'. She pays the first premium by UPI and receives the policy by email on 20 November. Her daughter reviews it in April 2026 and finds the premium is nearly half her mother's annual income; Meena believed she could stop after three years. Meena wants out. She has paid one premium, the free-look period is long past, and the call centre says the 'surrender value is zero'. The POSP's authorisation covers only pure term products; the endowment was not on his permitted list.
1. Identify what went wrong - on product authority, suitability and the sales pitch.
Read the worked answer
Three failures, in increasing order of seriousness for the POSP.
Product authority. A POSP may distribute only the simple, pre-underwritten products the insurer has approved for POSP distribution and filed with IRDAI; in life insurance that list is pure term cover. An endowment was not his to sell. This is the strongest point for the daughter, because the sale was irregular irrespective of how well the paperwork was done.
Suitability. ₹1,50,000 against a pension of ₹26,000 a month is roughly 48% of annual income, funded out of a fixed deposit she may need for medical expenses. The need-analysis and suitability obligations require the seller to match product, term and premium to income, liquidity needs and time horizon.
Misrepresentation. 'Like an FD with free insurance' omits the lock-in, the poor liquidity, the charges and the fact that the insurance is not free - it is priced into the product. The ₹27 lakh figure must be presented as a projection in the benefit illustration, not as a guaranteed outcome, and the customer's belief that she could stop after three years should have been corrected on the record.
2. What remedies are realistically open to Meena now that the free-look period has expired?
Read the worked answer
Free look has gone, so cancellation with a full refund less risk and medical costs is not available as of right. Three avenues remain.
Insurer's grievance redressal officer. A written mis-selling complaint must be acknowledged and resolved within the prescribed period (14 days under the policyholder-protection regulations), with reasons in writing.
Escalation. If the reply is unsatisfactory or absent, escalate on IRDAI's Bima Bharosa portal and then to the Insurance Ombudsman. The complaint lies within one year of the insurer's rejection, the Ombudsman's award limit (₹30 lakh) comfortably covers this amount, and accepting the award binds the insurer and closes the civil-court route on the same subject.
Exit value. The call centre's 'zero' is probably wrong. Under the surrender-value framework effective from 1 October 2024, a non-linked policy that has paid at least one full year's premium is entitled to a guaranteed or special surrender value. She should ask for the surrender-value table in writing, and also ask whether continuing to two full years' premiums and then making the policy paid-up suits her better than surrendering now.
3. How should the POSP respond to the daughter's call, and what should he have done differently?
Read the worked answer
He must not defend the indefensible. On the call he should confirm in writing what was sold, supply the proposal form, the benefit illustration and any sales material he used, acknowledge that the product was outside his authorised list, and support her complaint to the insurer rather than ask her to withdraw it.
He must not offer to pay her anything from his fee - that is a rebate and a fresh offence - and must not coach her on what to say. He should report the matter to the insurer's compliance team himself, before it is raised against him.
Prevention would have been straightforward: sell only from the approved product list; complete a written need analysis recording income, dependants, liabilities and liquidity; show the premium as a percentage of income; explain the lock-in and the surrender value at each duration; disclose his fee arrangement; and, where the suitable product is not on his list, refer the customer to a licensed agent or the branch and record the referral. A sale outside his authority is not a sales win - it is a conduct breach with a long tail.