IRDA’s Rs275 crore refund order to SBI Life proves botched product approval process

IRDA has asked SBI Life to refund Rs275 crore for collecting premium upfront on a policy, which had two premium payment terms. But why did IRDA approve this product which was cleverly designed to earn hefty commission for SBI?


The Insurance Regulatory and Development Authority (IRDA) has ordered SBI Life to refund Rs275.29 crore to the policy holders as the money was collected from them in violation of norms.

The product had two premium payment term (PPT).  Yet, in nearly 95% of the policies sold, SBI Life had collected the second year premium for its policy Dhanaraksha Plus Limited Premium Paying Term in the first year itself. What is worse, this policy was sold to those who availed of home loans from SBI and its associate banks during the period 2008-2011. The policy was intended to cover the outstanding loan in case of death of the policyholder during the term of the loan. As every one who has taken a mortgage in recent times knows, there is also an element of indirect coercion to take these policies to secure the borrowing.

SBI Life also had a single premium version of the product, but it did not provide an informed choice to the buyer. The reasons were simple. The single premium policy earned only 2% commission for intermediaries, which in this case was mainly SBI and its associate banks. The two PPT policy earned hefty 40% of the first year premium as commission and 7.5% of the second year premium as commission to banks which sold the policy. Clearly, the two PPT policy was bound to be much more expensive than the single premium policy if the commission levels have such huge difference.

It can be concluded that SBI and its associated banks did not act in best of customer interest by offering a cheaper option. SBI Life crafted a product with two PPT which could not have been for customer convenience. It would have been justified if the PPT was for two-thirds or at least half of the loan repayment period. In that case, there is respite to the customer in having flexibility to pay premium over a period of time. But, what is the advantage of two PPT versus single premium for customer? It is disadvantageous as the premium paid over two years would be higher than single premium due to inbuilt humongous difference in commission levels.

So, why did IRDA permit the two PPT toxic product to be launched at all? Did the regulator fail to anticipate that the product was structured to be mis-sold and is completely against customer interest? While IRDA may seem to have helped investors by asking for the premium to be refunded, this is a fit case for holding the regulator itself accountable. In fact this would also be a fit case for class action, both against SBI Life as well as the regulator. 

Did IRDA expect that the consumers can easily find out that single premium option was available? Approving a toxic product can remind one of ULIPs before September 2013 which even had high upfront charges of up to 70% and mind-boggling surrender charges.

Getting a loan application approved itself is a task and the customer is at mercy of the bank which ensures that the customer accepts whatever loan and property insurance is offered. Any resentment from the consumer can even be deal breaker for loan application. It can be seen from the fact that 93% of second year premiums were received in advance along with first year premiums in the year 2008-09, 94% in the year 2009-10 and 97% in 2010-11. Thus the premium collected is more on lines of a single premium than two yearly regular premiums against the approved File and Use features.

Making the two PPT product work as single premium by taking the second year premium upfront is a violation of approved File and Use features, but the insurer may argue that paying second year premium in advance was allowed by IRDA till 2013. But, SBI Life cannot be exonerated from its culpability to offer toxic insurance product; it casts a shadow over other life insurance products offered by the insurer.

IRDA order states the following issues (a) Dhanaraksha Plus Limited Premium Paying Term product was sold as single premium policy in violation of approved File and Use features, (b) Paying excess commission to Corporate Agents over and above the eligible 2% commission they would have been otherwise eligible had the single premium version of the policy been offered. (c) No informed choice given to the members of these group insurance policies as envisaged under Regulation 3(2) and 3(3) of IRDA (Protection of Policyholders’ Interests) Regulations, 2002. Thus it is concluded that these violations were detrimental to the interests of members of group insurance schemes of the concerned master policyholders.

SBI Life will be appealing against the IRDA order as per the recourse available to them.





3 years ago

First of all let us appreciate IRDA for this kind of bold step.
Here the plan is sold by the banks and not the SBI Life Insurance itself. Instead of penalizing the Insurance Company. As per the IRDA the Insurance company is authorized to collect the premium of 2nd year in advance. The option of single and 2 premium is available to the customer, its customer's choice to take either of it, But the banks might have sold only the 2 year plan only to get high commission, Hence the banks (or corporate agents)are responsible for any wrong selling of the product, then why penalize the Life Insurance leaving the High commission earners and mis-selling agents. The Present action by IRDA is only a temporary solution, what about the permanent solution to this kind of issues? is cancelling the licence of the banks is the only answer? never not at all.


Suresh Ramasubramanian

In Reply to kkdammala 3 years ago

The seller in this case is SBI Life. They are responsible for any act of commission or ommission by their agents.


3 years ago

It goes to say that even public sector undertakings including big banks are not exceptional in looting the public knowing that they are in need of loan. It is not about the refund to the policy holders, all the officials involved including the CEO should be punished for resorting to such unethical practice. What a shame that most revered bank in India doing such blood sucking practices in violation of its principles and customer rights.

IRDA should do one more favor as it is proven that every bank which got insurance license are resorting to impose high commission policies when customers are approaching the bank to seek loan. Whether it is a education loan, home loan, auto loan, personal loan or even for locker, they are forcing customers to buy an insurance policy.

It is high time to ban insurance licenses given to banks and bank premises should never be used to solicit insurance business from the customers. The current IRDA action is only a temorary solution and root cause is not addressed.


3 years ago

25% - 40% commission to life insurance agents and nobody calls it 'anti policy holder'

Whereas 2.25% commission becomes anti investor for selling Mutual funds?


3 years ago

SBI LIFE'S license should be cancelled as they are miss leading its clients.The clients should get interest on premium paid in advance.

SBI LIFE are very much aware of IRDA policies and if they voilate it purposely means they have taken IRDA for granted. And if IRDA relaxes these rules & penalties than other insurance companies will also follow similar practice.

suda bhanu prasad

3 years ago

irda should allow individual agents to sell multiple insurance company products.

Suresh Ramasubramanian

3 years ago

First, it is quite ironic to see a sbi life ad just below this article's headline on your main page :)

Also - I was sold this exact same policy with 2 years premium collected in advance as a single premium, in conjunction with my home loan in 2010.

I saw a note in 2012 where sbi life was penalized 6 lakhs by IRDA for offering this product. I approached their ombudsman requesting a refund, which they denied citing that "this was a technical decision by IRDA, it is a good policy and they decline to refund it"

Now I am going to approach them again on the same subject. Let us see how this goes on ..



In Reply to Suresh Ramasubramanian 3 years ago

Please do so & keep us updated.

Suresh Ramasubramanian

In Reply to raj 3 years ago

I sent a letter to the SBI life people asking for a refund, and then marked a copy to the insurance ombudsman as it was a continuation of a year old complaint. The ombudsman sent me a letter today morning saying that "We would like to inform you that this forum is a quasi judicial authority constituted under the RPG rules 1998 with defined mandate. As per these rules, the subject matter of your complaint viz: alleged missale and request for cancellation of policy and refund of amount paid, do not come under the purview of insurance ombudsman"

They also suggested that as IRDA has passed an order to refund the excess commission I can wait for the timeframe defined in the order, for SBI Life to refund me the excess commission.

I thought the ombudsman office was where complaints on misselling were to be directed?


In Reply to Suresh Ramasubramanian 3 years ago

sathya cumaran
thanks to moneylife in bring out all the allegations of capital market related scandals if my case is not handled by you we would like to bring the india biggest scam of stock market where the officicals of sebi bse nse are main culprits apart from stock brokers who are pron for cheating would be exposed and that would be end of india capital market scenario and no FII would be interested in indian capital market would be exposed this would be an disgrace for new govt and our country but we have no other option to expose as we have the records of all the credentials of all the officials past and preaent would be released from our platform where there would not be any threat for our life


In Reply to Suresh Ramasubramanian 3 years ago

sathya cumaran
thanks to moneylife in bring out all the allegations of capital market related scandals if my case is not handled by you we would like to bring the india biggest scam of stock market where the officicals of sebi bse nse are main culprits apart from stock brokers who are pron for cheating would be exposed and that would be end of india capital market scenario and no FII would be interested in indian capital market would be exposed this would be an disgrace for new govt and our country but we have no other option to expose as we have the records of all the credentials of all the officials past and preaent would be released from our platform where there would not be any threat for our life

Elections 2014: A challenge before the voter

Voters should involve more in the electoral process right from the selection of candidates by political parties to make the need to use NOTA button redundant

The promise to raise health spend to 3% of gross domestic product (GDP) from the present low of 1.2%, which is a likely priority in the Congress manifesto should be welcomed. However, an offer coming from a political party that was at the helm for over 65 years, during which period, the record of steps taken to apply the Directive Principles of State Policy enshrined in the Constitution (Articles 36 to 51), including Article 47 relating to ‘raising the level of nutrition and the standard of living and to improve public health’ will undergo credibility-test at the hustings (political campaigns).


The impact on the aam aadmi such offers will have, encouraging him to improve his awareness about his rights and government’s duties, may, itself work as a change agent. Viewed from this perspective, other political parties should follow Congress in selective highlighting of citizen’s rights and duties. After all, like Directive Principles, as of now, election promises are also ‘not enforceable by any court’.


By creating more awareness among people about expectations of the authors of Indian Constitution, from the governments, political parties will be doing a great service to themselves and the country. Such a shift in the thematic content of election campaign will make Elections 2014 different from the previous ones. Who knows, it may even pave the way for a national consensus on crucial issues making the kind of the unhappy scenes the closing ceremonies of last Lok Sabha telecast to the world viewers a thing of the past.


This discussion can be taken further. In my article How much of Indian Constitution is for ‘We, the people’? I had quoted Arvind Kejriwal saying:  “There are some fundamental issues which we are committed to and are non-negotiable- secularism, equality and non-violence. All that has been written in the preamble of the Constitution that is our basic agenda.”


Time is opportune to recall this and see what thoughts should prevail upon the Indian voter before exercising his franchise in Elections 2014, even if, in certain situations he may opt for the last option, namely, pressing the none of the above (NOTA) button.


That takes us back to the pre-election propaganda and manifestos of political parties. The churning in the political scenario, partly caused by the Aam Aadmi Party (AAP) rise, is forcing the Indian voter think more seriously about his rights and government’s responsibilities.


True, this country’s problems, from day one, post-independence, can be sourced to centralisation of power and resources. It does not start or end with government or governance.


Our Constitution gives enough flexibility in governance and the clarity of guidance for handling almost everything coming under the broad responsibilities of legislature, executive and judiciary is perhaps unique to the Indian Constitution. Perhaps, if the political leadership in whose hands the responsibility of administering the Constitution vests revisit the Constitution with the promises made by several candidates who fought past elections and their achievements as also the possible realignment of priorities in promises needed in the context of the recent political developments, it may still be possible to bring some clarity in the minds of the bewildered voters.


The issues covered in entire chapter on Directive Principles, mutatis mutandis, are suggested for acceptance for inclusion in election speeches/manifestos.


Several areas of social justice such as gender equality, right to an adequate means of livelihood, distributive justice, healthcare, avoidance of child labour, protection for vulnerable sections of society against exploitation and abandonment, equal justice, free legal aid for the needy, organisation of village panchayats, right to work, right to education, public assistance in cases of unemployment, old age, sickness and disablement, just and humane conditions of work and maternity relief, living wage and decent standard of life for workers, promotion of cottage industries, workers’ participation in management, uniform civil code for the citizens, provision for childhood care and education to children below six years, support to scheduled castes and scheduled tribes and weaker sections of society, raising the level of nutrition and the standard of living of the people, improvement in public health, modernising agriculture and animal husbandry, protecting environment, protection for monuments and places and objects of national importance, separation of judiciary and executive and promotion of international peace and security are all covered under directive principles of state policy.


(Articles-39 to 51).

Preamble of the Constitution reads:

“WE THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a sovereign socialist secular democratic republic and to secure to all its citizens:

JUSTICE, social, economic and political;

LIBERTY of thought, expression, belief, faith and worship;

EQUALITY of status and of opportunity;

And to promote among them all

FRATERNITY assuring the dignity of the individual and the unity and integrity of the nation;



This has placed the responsibility of ensuring that right choices are made when the right to vote is exercised squarely on the citizen. Thus, voters should involve more in the electoral process right from the selection of candidates by political parties, making the need to use NOTA button redundant!


(MG Warrier is former general manager of Reserve Bank of India.)



Yerram Raju Behara

3 years ago

It is time that all the political parties pledge not to take party lines in the elections to the Cooperative Societies and Agricultural Market Yards and the governing boards to these entities will not be decorated with political bigwigs. Financial Inclusion agenda would be hanging at the doorsteps of these institutions for fuller and quicker realization.


MG Warrier

In Reply to Yerram Raju Behara 3 years ago

Thanks. This is the purpose of opening discussions. Wish more readers participate. Not necessarily endorsing or contesting the views already expressed-these are welcome- but coming out with views on related issues

Maharashtra police never sought Speaker’s permission to prosecute MLAs

Over the past 10 years, Maharashtra and Mumbai police never applied for any permission from the Speaker to prosecute any MLAs for any offence, reveals an RTI

Investigative agencies in Maharashtra have to seek permission of the Speaker if it wants to prosecute any member of Legislative Assembly (MLA) for an offence. It has come to notice now that over the past 10 years, neither Maharashtra nor Mumbai police have ever applied for permission from the Speaker to prosecute an MLA! This information has been revealed in a reply to a query filed by Right to Information (RTI) activist Anil Galgali.


As per media reports, former commissioner Dr Satyapal Singh had announced that the Mumbai Police has sought permission from the Speaker to prosecute MLA and former minister of state for home, Kripashankar Singh in a disproportionate assets case filed some time back. However, according to the RTI reply, received by Galgali, there was no such correspondence in this case.


Galgali said many times, police claims that they are waiting for a reply from the Speaker on their application and once it is received, they would proceed with prosecution of public representatives.


In his RTI application, Galgali requested the Speaker’s office to provide info about the number of cases in which the police has sought permission to prosecute a public representative.


In the reply to the query, Umesh Shinde, desk officer at the Maharashtra Legislative Secretariat informed that – “Nil - Permissions were sought.” Galgali also sought to know what kind of proposals for sanctions to prosecute are needed to be sent to the Speaker, and which cases do not require permission of Speaker to prosecute any MLA. In the reply to this query also was given as “Nil.”


This is contrary to claims often made by police about prosecuting MLAs.


Anil Galgali had sought information on the same subject from Mumbai and Maharashtra Police also. In reply to the query, ACP (Coordination), Mumbai Police said that they have transferred and referred the query to Maharashtra Legislative Secretariat. On behalf of Maharashtra Police, its Public Information Officer DD Phadke replied that they have no records of the information sought. It is significant to note here that as per a survey by an NGO almost 146 MLA's & 26 MP's have criminal records in Maharashtra.


You may also want to read:


State's ministers extravagant flight plans: Dr Patangrao Kadam leads the march, annual expenses on flight expenses touches Rs2.10 crore

Maharashtra SCIC illegally transferred three SICs?



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