The National Consumer Disputes Redressal Commission has established a critical precedent that mis-selling of life insurance policies to senior citizens through materially false representations in proposal forms renders the contract voidable, irrespective of the free-look period or signed acknowledgments. This ruling reinforces consumer protection principles in financial services, particularly where vulnerable individuals are targeted by aggressive sales tactics.
Background & Facts
The Dispute
The dispute arose from the sale of the "Reliance Nippon Life Fixed Saving Increasing Income Plan" to fifteen senior citizens, aged between 51 and 83, between 2019 and 2021. Each complainant paid an initial premium of ₹2,50,000 based on assurances from agents that the amount would be invested as a fixed deposit and returned with interest after five years. In reality, the policy required annual premiums for five years, with a 12-year maturity period. The complainants, mostly retired government employees with modest pensions, were not financially capable of sustaining such payments.
Procedural History
The case progressed through multiple forums:
- 2020 - 2021: Individual complaints filed before District Consumer Disputes Redressal Commission-II, Chandigarh
- 10 November 2023: District Commission held the insurer guilty of deficiency in service and unfair trade practice, ordering refund of premium with 9% interest, ₹15,000 compensation for mental agony, and ₹10,000 litigation costs
- 8 October 2024: State Commission upheld the District Commission’s findings, rejecting the insurer’s appeal
- 2025: Reliance Nippon Life Insurance filed 15 Second Appeals before the NCDRC seeking reversal
Relief Sought
The appellants sought to set aside the orders directing refund and compensation, arguing that the policy terms were clearly disclosed, the free-look period was available, and the complainants had defaulted on premiums. The respondents sought affirmation of the lower forums’ findings, emphasizing misrepresentation and exploitation of elderly policyholders.
The Legal Issue
The central question was whether a life insurance contract can be set aside for mis-selling when the proposal form contains materially false information about the policyholder’s income and occupation, and the policyholder is a senior citizen with limited financial capacity, despite the existence of a free-look period and signed declarations.
Arguments Presented
For the Appellant
The insurer contended that the policy documents, including the covering letter dated 22.03.2019, clearly disclosed the 12-year term and five-year premium payment schedule. It relied on IRDAI (Protection of Policyholders’ Interests) Regulations, 2002, asserting full compliance with disclosure norms. The insurer argued that the complainants had received all documents, signed the proposal form, and failed to invoke the 15-day free-look period, thereby conclusively accepting the terms. It cited precedents such as Mohan Lal Benal v. ICICI Prudential Life Insurance Co. Ltd. and Harish Kumar Chadha v. Bajaj Allianz Life Insurance Co. Ltd. to argue that courts cannot rewrite contracts absent fraud or coercion.
For the Respondent
The complainants’ counsel argued that the agents obtained signatures on blank proposal forms without disclosing material terms. The proposal forms falsely recorded annual income as ₹15 lakh and occupation as "Professional Engineer," despite the complainants being retired government servants with pensions of ₹35,000/month. The counsel relied on New India Assurance Co. Ltd. v. Smt. Usha Yadav and Dharmendra Goel v. Oriental Insurance Co. Ltd. to assert that such misrepresentation constitutes unfair trade practice under Section 2(1)(r) of the Consumer Protection Act, 2019, and vitiates consent. The argument emphasized that senior citizens, dependent on fixed incomes, cannot be expected to understand complex insurance products without proper disclosure.
The Court's Analysis
The NCDRC acknowledged the insurer’s compliance with the free-look period under Clause 4.1 of the IRDAI Regulations, noting that the policy documents were duly dispatched and received. However, the Court emphasized that compliance with procedural norms does not absolve an insurer of liability for substantive misrepresentation.
"The fact that the policyholder received the policy documents and had the opportunity to exercise the free-look period does not negate the prior misrepresentation that induced the purchase."
The Court found that the false declaration of income and occupation in the proposal form was not a mere clerical error but a deliberate act to secure policy issuance. The complainants’ financial profiles - retired pensioners with annual incomes of ₹5 lakh or less - made the annual premium of ₹2.45 lakh financially impossible. The Court held that such misrepresentation was not merely incidental but central to the inducement of the contract.
The Commission distinguished the insurer’s cited precedents, noting that those cases involved policyholders with adequate financial capacity and no evidence of falsified proposal forms. Here, the concurrent findings of two lower forums on the basis of documentary evidence and witness testimony were entitled to deference under Section 21(b) of the Consumer Protection Act, 2019, which limits the NCDRC’s revisional jurisdiction to cases of jurisdictional error or material irregularity.
The Court further relied on Rubi (Chandra) Dutta v. United India Insurance Co. Ltd. and Sunil Kumar Maity v. SBI, affirming that consumer fora are best positioned to assess credibility and context, especially in cases involving vulnerable consumers.
The Verdict
The NCDRC partially allowed the appeals. It upheld the direction for refund of the entire premium with interest but set aside the awards of ₹15,000 as compensation for mental agony and ₹10,000 as litigation costs. The insurer was directed to refund the premium within 60 days, with interest at 12% per annum for delay. The core holding was that misrepresentation in the proposal form vitiates the contract, entitling the consumer to a refund even if the free-look period was not invoked.
What This Means For Similar Cases
Misrepresentation Vitiates Consent Even With Signed Forms
- Practitioners must now argue that signature on a proposal form does not equate to informed consent if material fields (income, occupation, financial capacity) are falsified by agents
- Insurers bear the burden to prove that the policyholder was fully aware of the terms and that the proposal form was completed with their active participation
- Courts will scrutinize whether the policyholder’s financial profile aligns with the policy’s premium structure
Free-Look Period Is Not a Shield Against Mis-Selling
- The 15-day free-look period remains a procedural safeguard, but cannot be invoked to validate a contract induced by fraud or misrepresentation
- Consumers who fail to exercise the free-look period are not automatically bound if the contract was procured through deceit
- Insurers must demonstrate that the policyholder had sufficient time, understanding, and access to independent advice before signing
Senior Citizens Are a Protected Class Under Consumer Law
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Policies sold to individuals over 60 require heightened scrutiny for suitability
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False income declarations for elderly applicants will be treated as unfair trade practice under Section 2(1)(r)
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Insurance companies must implement internal audits of proposal forms for elderly clients and train agents on ethical sales practices
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Actionable Takeaway: In any insurance dispute involving senior citizens, immediately request the original proposal form and compare it with the applicant’s bank statements, pension records, and employment history to establish misrepresentation
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Actionable Takeaway: Argue that the insurer’s failure to verify income or occupation constitutes a breach of its duty under Section 18 of the Consumer Protection Act, 2019 to ensure fair and transparent transactions
