Your new rights when a bank bundles unwanted insurance with a loan or account

You apply for a home loan, personal loan, credit card, locker or bank account. Everything appears to be progressing normally, until you are told that you must also buy an insurance policy. Perhaps the bank employee describes it as compulsory, or the premium quietly appears in your loan amount, y you receive a policy document several days later and discover that you have bought something you never knowingly chose.

From 1 January 2027, new Reserve Bank of India rules will give you much clearer protection against this kind of mis-selling. Banks and other regulated lenders will have to obtain your explicit consent, provide the information you need to make an informed decision and avoid making one product conditional on an unwanted extra product.

If mis-selling is established, the bank will have to refund the amount you paid and compensate you for resulting losses in accordance with its approved policy. The rules do not mean that every insurance requirement connected with a loan will become unlawful. A lender may have a legitimate reason to require insurance for a secured property or another financed asset. But requiring appropriate cover is not necessarily the same as forcing you to buy a particular policy from the bank’s chosen insurer.

That distinction matters. You may need insurance, but you should still be able to understand what you are buying, compare alternatives and make a genuine choice.

What is changing?

The RBI issued final Responsible Business Conduct amendments in June 2026, following concerns about the way banks and other financial businesses advertise and sell their own and third-party products. The new framework covers far more than insurance. It can also apply when a bank sells or recommends investments, mutual funds, pension products and other financial services provided by a separate company.

The RBI’s definition of mis-selling includes situations where:

You receive a product that is unsuitable or inappropriate for your financial profile.
You receive incorrect, incomplete or misleading information.
The bank sells you a product without your explicit consent.
The bank compulsorily bundles an additional product with the one you requested.
The sale breaches another mis-selling standard set by the relevant financial regulator.

Importantly, your signature or recorded consent will not necessarily excuse an unsuitable sale. If the bank recommends a product that does not fit your needs or financial circumstances, the sale may still qualify as mis-selling even if you technically agreed to it. The final rules are due to take effect on 1 January 2027. That means you should not describe every protection in the new framework as an enforceable current right before that date. You can, however, already challenge misleading or unauthorised sales through the bank, the insurer and the relevant regulators.

The original February 2026 report discussed the RBI’s draft proposals. The RBI subsequently issued final directions in June, with implementation scheduled for January 2027.

What does compulsory bundling look like?

Compulsory bundling occurs when a bank makes one product or service conditional on you taking another product or service.

You might encounter it when you hear statements such as:

“You cannot receive this loan unless you buy our life insurance.”
“You must take this investment plan before we can open your account.”
“Your loan will only be approved if you buy the policy through us.”
“You need this insurance to receive the advertised interest rate.”
“The insurance is free,” even though the premium has been added to your loan.
“Everyone has to take this policy,” when the product is actually optional.

The pressure may be more subtle. A staff member might pre-tick an insurance box, include a premium in the loan illustration without properly explaining it or ask you to sign several documents at once. You might also encounter a digital journey designed to make refusal difficult. The option to buy could be selected automatically, while the option to decline is hidden, confusingly worded or placed behind several additional screens.

These manipulative designs are often described as dark patterns. Under the new RBI framework, banks and their agents must avoid digital practices that mislead or trick you into doing something you did not intend to do.

Can your bank ever require insurance for a loan?

A bank may have a legitimate reason to require protection for an asset used as security. If you take out a home loan, for example, the lender may require the property to remain insured against specified risks. If you finance a vehicle, the law and the lending agreement may require appropriate motor insurance. This does not automatically give the bank the right to insist that you buy its preferred policy.

You should ask three separate questions:

Is the insurance genuinely required?
What type and level of cover must you maintain?
Can you buy suitable cover from another insurer?

If the bank says the insurance is mandatory, ask it to identify the law, regulation or contractual term that creates the requirement. Request the answer in writing.

The bank should not blur the distinction between requiring suitable protection and requiring you to buy a specific product from a specific provider. You should also distinguish asset insurance from credit-life or loan-protection insurance. A policy that repays your loan if you die or experience another insured event may offer useful protection, but that does not make every such policy compulsory. You should decide whether the policy meets your needs after considering its cost, exclusions, term, benefits and alternatives.

What does explicit consent mean?

The bank should not treat silence, an unticked refusal box or a pre-selected option as genuine consent. Under the new framework, your consent must be specific, informed and unambiguous. You should take a clear affirmative action, and the bank should record or document it.

In practical terms, you should know:

Which product you are buying
Which company provides it
How much you will pay
Whether the premium is paid upfront or added to your loan
Whether interest will accrue on a financed premium
How long the policy lasts
What the policy covers
What it excludes
Whether you can cancel it
What surrender or exit charges apply
Whether the product is optional
Whether the seller receives a commission

If one form covers several products, you should be able to choose the individual products you want. The bank should not use one broad signature to imply to that you agreed to every optional add-on. You should be particularly cautious when someone asks you to share a one-time password. An OTP may act as your recorded approval. Do not provide it until you understand exactly what transaction or consent it authorises.

How can unwanted insurance make your loan more expensive?

A bundled policy may cost you more than the premium shown on the first page. If the bank adds the premium to your loan, you may pay interest on it throughout the loan term. A policy costing ₹50,000 can therefore increase your total repayment by considerably more than ₹50,000.

You may also discover that:

The policy lasts for less time than your loan.
The insured amount falls as your loan balance reduces.
Important medical conditions are excluded.
You already have adequate life or health insurance.
The policy becomes less useful if you repay or transfer the loan early.
Cancellation or surrender charges reduce the amount you recover.
The bank receives the claim payment directly, leaving little or nothing for your family.
A cheaper or more suitable policy was available elsewhere.

You should ask the bank to show the insurance premium separately from the loan principal and other charges. Request two repayment illustrations: one with the policy and one without it. That comparison will help you see both the immediate premium and the interest you could pay on it.

How can you tell whether you have been mis-sold a policy?

You may have been mis-sold insurance if the product, explanation or sales process did not match what you genuinely agreed to.

Warning signs include:

You were told that an optional policy was compulsory.
You were not allowed to consider another insurer.
You did not receive the policy terms before agreeing.
You were not told that the premium would be financed.
You were not told about exclusions, lock-ins or surrender charges.
The bank described an investment-linked product as a fixed deposit.
The seller promised a guaranteed return that the documents do not support.
Your application contains answers you did not provide.
Someone signed or completed the proposal form on your behalf.
You were asked to share an OTP without receiving a clear explanation.
You received a policy you do not remember approving.
The product is clearly unsuitable for your age, income, needs or risk tolerance.
The bank linked approval of your requested product to an unrelated purchase.

You should not assume that mis-selling only occurs when a salesperson is misleading, by omitting important information, creating a misleading impression or selling without clear consent can also matter.

What should you do before signing a loan agreement?

You have the most leverage before the loan is disbursed and before an insurance premium leaves your account. Ask the bank directly if this policy compulsory, or can you decline it without affecting your loan application. If the bank says you must have the cover, then ask whether you can buy equivalent cover from an insurer of your choice,

You should also ask for:

The insurance proposal form
The complete policy wording
A benefit illustration
A list of exclusions
The free-look cancellation terms
The premium and applicable taxes
The commission or distributor information
The effect of early loan repayment
The cost of financing the premium
Written confirmation that declining the policy will not affect your application

Do not sign blank or incomplete forms. Do not accept verbal assurance that conflicts with the documents. Do not share an OTP simply because a member of staff says it is needed to “complete the process.” If you feel pressured, say that you want time to read the documents. A legitimate financial product should withstand scrutiny.

What evidence should you keep?

A mis-selling complaint becomes much stronger when you can show how the product was presented and what you were told.

You should retain:

Your loan or account application
The sanction letter
The Key Facts Statement
The loan agreement
The insurance proposal form
The policy schedule and full wording
Premium receipts
Bank statements
Repayment illustrations
Emails, text messages and WhatsApp conversations
Screenshots of the online application
Promotional material
Call recordings you lawfully possess
The name and role of the person who sold the product
Notes of branch conversations, including dates and times
Every complaint reference and response

Check the proposal form carefully, if it contains inaccurate information, mark each discrepancy. Look for answers about your income, health, investment objectives or existing cover that you did not provide. You should also check whether the premium came from your account or was added to the loan. If the bank financed it, calculate the additional interest.

Can you cancel the insurance during the free-look period?

You may be able to cancel a newly issued policy during its free-look period if you disagree with its terms or decide that it does not meet your needs. The exact rules depend on the type of insurance and the applicable IRDAI requirements. For health insurance, IRDAI currently identifies a free-look period of up to 30 days from receipt of the policy document and a seven-day turnaround for a qualifying cancellation refund.

Your refund may not equal every rupee you paid. The insurer may make permitted deductions for matters such as proportionate risk cover, medical examinations or. The insurer may stamp duty, depending on the product and circumstances. You should act immediately because the clock normally starts when you receive the policy document—not when you eventually find time to read it. Submit the cancellation request in writing and state that you are exercising your free-look right. Keep proof of submission and ask for a cancellation reference.

If the bank financed the premium, tell both the bank and insurer. Ask the bank to ensure that the refunded premium reduces your outstanding loan rather than remaining unallocated.

What if the free-look period has expired?

You can still complain about mis-selling after the free-look period, although the dispute may become more difficult. You should explain why you did not discover the problem sooner. Perhaps the bank did not provide the policy documents, the salesperson misrepresented the product or you only discovered the premium when reviewing your loan statement. Do not simply request “policy cancellation” if your real allegation is mis-selling. Ordinary surrender terms may produce a low value, particularly for a long-term insurance or investment product.

Instead, state clearly that:

You did not give informed and explicit consent.
The bank described the policy inaccurately.
The bank made the loan or account conditional on the policy.
The product was unsuitable for your circumstances.
Important costs, risks or exclusions were withheld.
The proposal form does not reflect the information you supplied.

Ask the bank and insurer to investigate the sale, preserve any call recordings or digital consent records and explain the evidence on which they rely.

What refund could you receive under the new RBI rules?

Once the new rules take effect, the bank must maintain a compensation policy for mis-selling. Where mis-selling is established, the bank must refund the entire amount received from you for the mis-sold product or service. It must also compensate you for losses arising from the mis-selling in line with its approved policy.

That could matter if, for example, the bank:

Deducted an unauthorised premium
Added the premium to your loan
Charged interest on the financed premium
Sold you an unsuitable investment that lost value
Applied cancellation or surrender charges after an improper sale
Caused another direct and demonstrable financial loss

A full refund will not necessarily happen merely because you say you did not want the product. The bank will investigate whether mis-selling occurred. Your evidence will therefore remain critical, you should ask the bank to refund not only the premium but also any interest or charges that arose because the premium was added to your loan. If you suffered another financial loss, explain the calculation and provide supporting records.

How should you complain to the bank?

You should begin with a written complaint to the bank’s grievance department or designated grievance redressal officer. Do not rely entirely on the branch employee who sold the product. Use an official channel that gives you a complaint reference.

Your complaint should include:

Your loan, account and policy numbers.
The date and location of the sale.
What product you originally requested.
What additional product the bank sold.
What the seller told you.
Why you believe the product was optional, unsuitable or misrepresented.
Whether you gave explicit consent.
How much you paid.
Whether the bank added the premium to your loan.
The remedy you want.

You could write:

You sold me policy [number] while processing my application for [loan or account]. Your representative told me that I had to buy this policy to receive the requested banking product. I was not offered a genuine choice of provider and did not receive a clear explanation of the premium, exclusions or effect on my loan repayments. I believe you compulsorily bundled and mis-sold this policy. Please preserve and provide the proposal form, call recordings, consent records and sales notes. I am asking you to cancel the product, refund the premium and associated interest, and compensate me for my resulting loss.

Attach copies rather than original documents unless the bank specifically requires originals. Ask for a detailed written response. If the bank rejects your complaint, ask it to explain the evidence showing that you chose the product freely and received all material information.

Should you complain to the bank or the insurer?

In many cases, you should complain to both. The bank may have sold or distributed the policy, while the insurer issued it and holds the premium. Each business may try to say that the other is responsible. You should tell the bank that you are challenging the sales process. Tell the insurer that the policy may have been issued without informed consent or on the basis of misleading or inaccurate information.

Ask the insurer for:

The complete proposal form
Your recorded consent
The sales illustration
Any suitability assessment
Call recordings
The policy delivery record
The cancellation and refund calculation

Sending parallel complaints helps prevent the bank and insurer from passing you back and forth.

How do you escalate a banking complaint?

If the bank does not resolve your complaint satisfactorily, or does not respond within the applicable period, you may be able to approach the RBI Ombudsman through the RBI Complaint Management System. You should normally complain to the bank first. Include its final response, or evidence that it failed to respond,with your Ombudsman complaint.

You can call the RBI contact centre on 14448 for help understanding the complaint process, although the contact centre does not itself file the complaint for you.

Your submission should focus on the bank’s conduct:

It made another product a condition of the product you requested.
It did not obtain informed consent.
It gave misleading or incomplete information.
It failed to provide important documents.
It refused to investigate the sale properly.
It failed to refund an unauthorised charge.

Keep your description chronological and attach the most persuasive documents.

How do you escalate an insurance complaint?

You should first complain to the insurer’s grievance redressal officer.

If the insurer does not resolve the complaint within the prescribed period, or you remain dissatisfied, you can escalate through IRDAI’s Bima Bharosa portal.

You can also contact IRDAI by:

Calling 155255 or 1800 4254 732
Emailing complaints@irdai.gov.in
Submitting your complaint through Bima Bharosa

IRDAI says Bima Bharosa allows you to register a complaint, send it to the relevant insurer and track its progress. You should keep the token number issued when you register.

If the insurer rejects your complaint, fails to respond for 30 days or provides an unsatisfactory resolution, you may also be able to approach the Insurance Ombudsman. The Ombudsman can consider complaints involving issues such as misrepresentation of policy terms, premiums, policy servicing and a policy that does not match the proposal form.

You can read more about the eligibility conditions on IRDAI’s Insurance Ombudsman guidance page.

Can you also use the National Consumer Helpline?

Yes. You can register a grievance through the National Consumer Helpline as a pre-litigation route.

You can complain online, call 1915, or use WhatsApp on +91 8800001915.

Include your bank and insurer complaint references, the policy documents and a clear explanation of the remedy you want. The helpline may help you obtain a response without immediately beginning formal proceedings.

If none of the available complaint routes resolves the problem, you can consider whether a consumer commission claim or another legal remedy is appropriate. You should obtain individual advice if you are uncertain about the correct forum, limitation period or value of your claim.

What if the salesperson no longer works for the bank?

A bank cannot necessarily avoid responsibility simply because an employee, direct selling agent or representative has left. Your complaint concerns the way a product was sold through the bank’s distribution arrangements.

Ask the bank to retrieve:

Internal sales records
Call recordings
Consent logs
Application timestamps
Commission records
Branch CCTV, if still available and relevant
Emails between the bank and insurer
The identity and status of the person who handled the sale

You should complain promptly because some records may only be retained for a limited period.

What should you do right now?

If you are taking out a loan or opening an account before the new rules begin, you should still challenge pressure selling. Ask whether every additional product is optional. Ask for the answer in writing. Compare policies independently and do not sign or approve anything you have not read.

If you have already received unwanted insurance:

Check when you received the policy.
Use the free-look period immediately if it remains available.
Ask for the proposal form and consent record.
Calculate the premium and any loan interest charged on it.
Complain to the bank and insurer in writing.
Preserve every document and message.
Escalate through the RBI or IRDAI route that applies to your complaint.
Use the National Consumer Helpline if you need further pre-litigation support.

Do not let a salesperson reduce your complaint to “buyer’s remorse” if you were told the policy was compulsory, given misleading information or never knowingly approved it.

You should be able to choose what you buy

When you approach a bank for a loan or account, you should not have to navigate hidden add-ons, misleading consent screens or pressure to buy a financial product you do not understand.

The RBI’s new rules should make that principle much clearer from 1 January 2027. Your consent must be real, your choices must be understandable and the product must suit your circumstances. If a bank establishes that mis-selling occurred, the new framework requires a refund and provides for compensation for resulting loss.

You should still stay alert. Ask whether the insurance is compulsory, whether you can choose another provider and how the premium affects your total borrowing cost. Put important questions in writing and keep every answer.

And if someone you know is about to take out a loan, forward this guide to them. The best time to spot unwanted insurance is before an OTP is shared, a form is signed or a premium is added to years of repayments.

This article provides general consumer information and does not constitute legal or financial advice. The RBI’s new responsible-sales framework is scheduled to take effect on 1 January 2027. Your current rights, complaint route and available remedy will depend on your provider, product and individual circumstances.

If you have any thoughts on this topic, or any other consumer issues you would like us to cover, feel free to get in touch with us at support@resolver.co.uk.

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