Many insurance policy documents are poorly written and presented, according to the UK's financial regulator.
The FSA has threatened disciplinary action over misleading documents
The Financial Services Authority (FSA) said some policies failed to warn customers of significant exclusions that could stop them making a claim.
And some policies were sold to people too old to be eligible for the insurance on offer, the FSA said.
The Association of British Insurers (ABI) said there were "challenges" for the industry to deal with.
The FSA reached its conclusions after surveying more than 100 policy summaries and 'Key Facts' documents.
The survey covered policies for motor, household, critical illness, income protection and other types of general insurance.
In many cases the insurance documents were hard to read and understand, the FSA said.
And significant exclusions were either left out or not properly highlighted.
"These findings are worrying," said Clive Briault, the FSA's managing director of retail markets.
"Providing consumers with simple, clear and understandable information about products is a key part of our general insurance regime."
He threatened to take disciplinary action against any firm that failed to improve its documentation.
The FSA found that some critical illness policies failed to make it clear that customers with pre-existing conditions could not claim for them.
Other policies failed to include vital information such as the cancellation period.
An ABI spokesman said: "There are few details in Mr Briault's statement but there are clearly challenges for both the industry and the FSA in understanding and communicating these rules.
"This is the sort of issue that the new Retail Financial Services Forum could usefully discuss and we will, in any case, want to discuss these challenges with [the FSA's] Mr Briault."
The Retail Financial Services Forum was set up earlier in 2005 to bring together financial services companies and consumer groups "in a constructive dialogue" of benefit to retail investors.
The 17-member body will meet quarterly - starting this Friday - chaired by Richard Lambert, an external member of the Bank of England's monetary policy committee.