A 72-year-old widow, a 15-year ULIP and ₹15,000 of commission
Kamla Venkatesh, 72, is a widow with no dependants and a ₹40 lakh fixed deposit maturing next week. Her only income is a small family pension, and she wants to keep ₹10 lakh liquid for a cataract surgery and for her granddaughter's school fees in about three years.
Ishaan Mehta, an agent licensed for three years, proposes a unit-linked pension plan with a ten-year premium payment term. His illustration shows ₹78 lakh at the end of fifteen years at the higher assumed rate and ₹61 lakh at the lower rate. Because her existing endowment policy is paid up, he suggests she surrender it and use the proceeds for the first premium. She mentions the three-year cash need; Ishaan replies that she can 'always make a partial withdrawal'.
He also tells her not to worry about the medical questions because 'at 72 the branch does not send anyone for tests', and offers to return ₹15,000 out of his first-year commission as a goodwill gesture. He does not record why the product suits her.
1. Identify every breach in this sales conversation and name the rule each one violates.
Read the worked answer
At least six separate breaches, some of them regulatory offences rather than sales misjudgements.
- Suitability / mis-selling. A ten-year-premium, fifteen-year unit-linked pension plan for a 72-year-old who needs ₹10 lakh in three years is a liquidity mismatch. Pension products restrict withdrawal, and surrender inside the lock-in is penalised. The agent has sold the product he earns most from, not the product she needs.
- Misrepresenting returns. ₹78 lakh at the higher assumed rate is an illustration, not a projection. Presenting it as the likely outcome, without equal prominence to the lower rate and the statement that unit-linked returns are not guaranteed, is a misrepresentation.
- Rebating. Offering to return ₹15,000 of commission is an inducement prohibited by Section 41 of the Insurance Act, 1938. Both the giver and the person who accepts are liable to penalty, and the agent's licence is at risk.
- Twisting without a replacement analysis. Advising surrender of a paid-up endowment requires a documented comparison: surrender value forgone, guaranteed benefits lost, tax consequences and the new policy's charges. None exists here.
- Abetment of non-disclosure. 'At 72 the branch does not send anyone for tests' is advice to skip underwriting. It exposes the claim to repudiation under Section 45 and is a Code of Conduct violation for the agent.
- Process failure. No needs analysis, no record of why the product suits her, no senior-citizen care, no disclosure of commission.
2. What should Ishaan do instead, and what are the realistic consequences if he proceeds as planned?
Read the worked answer
What a compliant sale looks like.
- Start with the ₹10 lakh three-year need. Money needed in three years belongs in bank deposits, a short-duration debt fund or a ladder of fixed deposits - not in a product with a lock-in. Ring-fence that first.
- Then analyse the balance. Her only income is a family pension, so capital preservation and a predictable top-up matter more than growth. A single-premium immediate annuity, a short-duration debt portfolio or a simple guaranteed savings plan does the job without a ten-year commitment.
- If she still wants the unit-linked plan after a full explanation, document it: her goal, her horizon, the charges in the first five years, the surrender penalty, both illustrated rates, the commission earned, and her signature on the suitability record. Complete the medical truthfully and let the underwriter decide.
- Give her the free-look right in writing.
If he proceeds. Section 41 exposure and a monetary penalty for the rebate; disciplinary action by the insurer and IRDAI, including suspension or cancellation of the licence; the insurer may still be held responsible for the mis-selling and directed to refund or restructure the policy; and if a claim is later repudiated for non-disclosure, a 72-year-old widow loses what she was promised. The commission is a few thousand rupees; the downside is her retirement and his career.
3. If Kamla signs whatever is placed before her today, at what points can she still walk away?
Read the worked answer
She is not locked in yet, and the sequence matters.
- Nothing is binding until she signs the proposal. Up to that point she can simply decline, and the agent's obligation is to leave the benefit illustration with her.
- Once the policy is issued, the free-look period applies. It runs from the date she receives the policy document - at least 15 days, and 30 days where the policy is sold through distance marketing. If she cancels within it, the insurer refunds the premium less proportionate risk charges and medical costs; for unit-linked plans the fund value is refunded. The exact period and deduction are printed in the policy, so the agent should not quote a number from memory.
- If she discovers the mis-selling later, the routes are the insurer's grievance redressal officer (with a defined response timeline), then the Insurance Ombudsman - free, and able to order compensation for mis-selling - then the consumer commission or civil court. IRDAI's IGMS portal also logs the complaint and creates a paper trail.
- The surrender of the old endowment cannot be undone once processed. That is why the replacement analysis must come before the signature, not after.
In short: she can walk away until she signs, and during the free-look period afterwards - but the endowment surrender is the point of no return.