Insurance linked interest free loan? it could be a fraud

Sharma had applied for loans at many places to expand his business. He went ahead and inquired more about the loan, keen on the interest-free bit. “All I had to do was buy some life insurance policies based on my loan requirement. The policy would have matured after 10 years and the loan company would take the maturity amount as loan repayment,” he said.

The caller asked him to buy seven policies over a period of two to three months, out of which the loan was promised ₹50 lakhs. “I’ve lost ₹5 lakhs. He had promised that some money would be returned, which he told me for GST (Goods and Services Tax). I was told that the insurance policy papers would help me get approval for the loan,” Sharma said.

Lalan Prasad Sharma, a deputy director of the Indian Railways in New Delhi, was promised a loan amount that was 10 times the premium he had to pay for certain policies. Onkar Nath of Indore was promised a personal loan at the rate of 3% on the purchase of a life insurance policy. He was already running out of debt. After the payment was made, the fraudster stopped picking up the phone. The loan never came.

Such huge mis-selling of life insurance in the name of loans is prevalent not only in small towns but also in metros.

Data from Bima Samadhan, a Delhi-based grievance redressal platform, shows that 70% of the complaints they receive in a month are related to wrong sale of insurance against the promise of loans. Fraudsters posing as an insurance company representative or third party agent. “Several call centers are engaged in this activity. They get the data of loan seekers and call them with offers of interest free loans. Once they find the client, they bid the client to various brokers for the highest commission,” said Shailesh Kumar, Head of Insurance and Co-Founder, Insurance Solutions.

Insurance companies are aware of this type of fraud. “Promises of credit is one of the biggest categories among the types of mis-selling. We take strict action against the brokers/agents or our employees against whom we receive such complaints. Nitin Mehta, Chief Customer Officer, Bharti AXA Life Insurance said, “If fraud is proved, we terminate their contracts immediately.

The verification team of Bharti AXA Life specifically asks the customers if they have been promised any loan against the insurance before issuing the policy.

Cheaters, however, are smart.

“They tell them that insurance company agents call customers for verification. If they hear ‘yes’, they will take their own commission. Customers say that they are buying a policy for tax planning. Insurers will have call recordings of the same. It becomes a challenge if the insurers contest the customer’s complaint. We have managed to recover the money on behalf of the policyholders,” Kumar said.

Max Life has set up a Policyholder Protection Committee which reviews quarterly trends of incorrect sales complaints and recommends process improvements.

Manu Lavanya, Director and Chief Operations Officer, Max Life Insurance, said, “We have zero tolerance for cases where sellers are at fault.

In some cases, if individual agents have unfair sell policies, they may later sell their portfolios to a larger broker.

“When the wrong sale is reported, the actual person who has wrongly sold the policy may no longer be a part of the system or may be operating under any other name. The insurer may prevent the cancellation of licenses of such large brokers Survive,” Kumar said.

Therefore, customers need to ask the right questions and verify the creditworthiness of the person selling them the insurance.

“I realized there was something wrong with the loan document, but it all felt so real. They had shown me their website,” Nath said.

To this end, Naval Goel, Founder and CEO, PolicyX.com suggests that while buying an insurance policy, ensure that you are making the payment directly into the bank account of the insurer. “You must not pay any third party, be it a broker or an agent. The premium payment will have to go to the insurer,” he said.

Also, get whatever the other party is claiming, in writing, on the letterhead of the company they represent. Ultimately, if fraud happens, report it to IRDAI so that more people are aware of it and can take preventive action.