Mis-selling of Life Insurance Through the Allurement of Zero-Interest Loans

In India, financial consumers are increasingly being targeted by mis-selling of life insurance policies disguised as loan offers. One of the most deceptive tactics we see at Insurance Samadhan is the promise of an interest-free or zero percent loan through banks, NBFCs, or financial institutions such as Bajaj Finserv — on the condition that the customer first buys a life insurance policy.

The scheme typically unfolds like this:

A customer receives a call or is approached at a bank branch. The pitch is attractive: “Take a zero percent loan with no processing fee — all you need to do is take this insurance policy as a formality.” Sometimes, the bait is even sweeter: “You’ll also get tax benefits and your money will grow.” Desperate for funds or lured by the thought of an interest-free loan, the customer agrees. Soon after, instead of a loan approval letter, they receive a bulky life insurance policy pack. The promised loan never comes.

Why are people falling into this trap?

1. The power of urgency: Loans are usually sought in times of financial stress — for medical needs, education, or business expansion. This urgency makes customers vulnerable.
2. Association with trusted names: Scammers often use the brand names of banks, Bajaj Finserv, or other NBFCs, which creates false credibility.
3. The power of urgency: Loans are usually sought in times of financial stress — for medical needs, education, or business expansion. This urgency makes customers vulnerable.
4. Association with trusted names: Scammers often use the brand names of banks, Bajaj Finserv, or other NBFCs, which creates false credibility.
5. Complexity of life insurance: Customers don’t always read policy terms in detail, especially when they believe the insurance is just a side formality for loan approval.

The truth about loans against insurance

There is some truth to loans linked to life insurance, but not in the way they are sold:

1. Certain traditional policies allow a loan against policy value — but only after 3 years of continuous premium payment.
2. The loan is limited to a portion of the surrender value, not the full sum assured.
3. No financial institution, whether a bank or Bajaj Finserv, can provide a “zero percent instant loan” simply because you purchased a life insurance policy.

The consequences of mis-selling

1. Financial loss: Customers lose large sums as upfront premiums.
2. Policy lapse: Many cannot pay future premiums, and the policy lapses.
3. No loan access: The core reason for purchase — the loan — never materializes.
4. Emotional distress: Families feel cheated, often blaming themselves for “falling for it.”

Regulatory standpoint

The Insurance Regulatory and Development Authority of India (IRDAI) has clear rules that insurance should be sold transparently, without misleading promises. Yet, mis-selling continues due to high commission incentives and lack of customer awareness.

How Insurance Samadhan helps

At Insurance Samadhan, we’ve resolved over 18,000 insurance grievances, including hundreds of cases involving the false promise of zero-interest loans. Our team helps victims:

1. Understand their rights.
2. File complaints with insurers and regulators.
3. Escalate cases to the Insurance Ombudsman if required.
4. Recover losses or get corrective action on policies.

Mis-selling of life insurance is not just about money — it erodes trust in financial institutions. With awareness and timely action, policyholders can fight back.

Click here to register your complaint with Insurance Samadhan

Visit our website: insurancesamadhan.com

Mail us at corporate@insurancesamadhan.com

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