Neeraj Kumar, a 60-year-old retired government officer, was at a local bank branch to renew his fixed deposit. What followed was a masterclass in mis-selling.

The bank representative suggested something better than an FD–a plan to “double” his money in 5 years. Tempted by the promise, Neeraj agreed, not realising he had just signed up for a Unit Linked Insurance Plan (Ulip), a market-linked insurance product filled with charges, market risk, and no guaranteed returns. This is just one of the many ways financial mis-selling traps unsuspecting investors, especially retired employees who receive lump-sum monies from gratuity and provident funds.

How does this mis-selling happen? One of the most common tactics is a lack of transparency. Agents often skip key details like hidden costs, long lock-in periods, and hefty commissions. A regular premium product might be cleverly passed off as a single premium one, leaving the buyer dejected when asked to pay again the following year.

Sanjeev Govila (retired), CEO of Hum Fauji Initiatives, said, "ULIPs are now being sold as tax-saving investment products, but they often don’t give good returns. After 2010, IRDAI made some changes to improve them. Still, they continue to have high charges, fees for switching funds, and are not very transparent."

Another red flag is exaggerated returns. While the promise of “money doubling in 5 years” sounds attractive, nothing could be further from the truth, especially when it involves market-linked instruments. Regulatory bodies like the Sebi strictly prohibit such misleading promises for mutual funds. Yet, such claims are quite common.

Then there is bundling, a subtle form of coercion. Retirees are often told that buying an insurance policy is mandatory to get a home loan, locker, or education loan sanctioned. Most people trust their banker and agree without realising this is unethical.

Some sellers also push inappropriate products. Retirees with no dependents are often sold high-risk insurance-cum-investment products, even though they neither need life insurance nor can afford market losses. It is not about what the customer needs, it is about the commission the agent earns.

Add to this the lure of rebates and freebies: a small cashback, a gift, or even a promise of sharing commission. These gimmicks distract from the bigger picture of whether the product truly suits the customer’s financial goals.

"Insurance is easier to mis-sell than mutual funds because the rules are not as strict. Unlike mutual fund distributors who must follow SEBI’s tough compliance rules and are certified by AMFI, most insurance agents don’t face the same level of checks," said Govila.

A lack of financial awareness also hurts. Most people don't fully understand the products they are buying. That is why education, caution, and a second opinion before investing are more critical than ever. One should never forget to take a financial advisor's help before investing, because in personal finance, what you don’t know can hurt you.