The financial watchdog, the FCA, has slapped an £8m fine on a Dutch-owned insurance company, Stonebridge International Insurance Limited, which targeted low-income families.
Stonebridge cold-called potential customers after buying contact lists from catalogue firms, online retailers and credit card companies.
The company then pushed policies costing between £6 and £12 a month, which promised daily payments after an accident or payouts to families in the event of a death.
But the FCA says sales staff did not disclose enough about charges or limits on cover and tried to stop people cancelling.
Stonebridge, which operated from Maidenhead in Berkshire, has already paid £400,000 in compensation and is checking hundreds of thousands of cases in the UK and overseas.
Aegon, the Dutch group which owns Stonebridge, said it regretted the failings, had stopped the company from selling insurance over the telephone and replaced the management team.
An Aegon spokesman said that more than 480,000 people had been sold the policies over the two year period, but the company had 164,000 UK customers.