Free-look Period in an Insurance Policy

All You Need To Know About Free-look Period in an Insurance Policy

Introduction

Free-look period in Insurance policy offers you an opportunity to review and cancel your policy, if desired before making a monetary commitment. In short, it gives you the second chance to review the terms and conditions of your policy.

Free-look Period in an Insurance Policy

Meaning

• You have bought a new insurance policy and received the policy document and find that the terms and conditions are not what you wanted. What do you do? Grin and bear it? Not at all.
• Insurance Regulatory and Development Authority of India (IRDA) has built into its regulations a consumer-friendly provision that takes care this problem. If you have bought a policy and realise you don’t want it you can return it and get a refund.
• Free-look Period in an Insurance Policy is the window provided by the insurer to you to review your policy and return it if you feel you misunderstood or dissatisfied or were mis-sold the plan.

Key Points about Free-look Period in an Insurance Policy

How much is the Free-look period?

• The free-look period kicks in from the time you receive the policy document. The law allows the policyholder 15 days as free-look period from the date of receipt of the policy document.
• In case of online sale of policy, the free-look period of 15 days is extended to 30 days. Policy holder is allowed to cancel the policy during this period and get a refund.

Applies to which type of Policies?

Free-look period is available only for life insurance policies. For health insurance policies, the term should be at least three years. It does not apply to shorter-duration health insurance plans. However, if you have a travel policy that covers you for a year, as is with travel insurance for students, the free-look still applies.

How to make a Cancellation request?

• Once the policy holder is convinced that the policy terms do not match his/her expectations, they should communicate their intention to cancel the policy in writing.
• Some insurance companies prescribe a standard form for cancellation of policy during the free look period. Policy details, date of receipt of policy document, reason for cancellation and agent details must be mentioned in the application.

Proceeding of Cancellation request made by policy holder

• On receiving the cancellation request, the insurance company will get in touch with the policyholder to know the reasons for cancellation and try to provide solutions.
• However, if one still wishes to cancel the policy, the insurance company will have to process the request and issue refund.

What premium is refunded?

• Once the refund application process is completed and approved, the refund premium is calculated after deducting the following:
  1. Pro-rated risk premium for the period on cover
  2. Medical examination expenses incurred by the insurance company
  3. Stamp duty charges

Refund process for ULIPs

• In case of refund of a ULIP policy, since the policy is market-linked, the refund premium will be as per the prevailing NAV of the ULIP applicable on the date of policy cancellation (after deducting the above charges).
• For example, if your premium was Rs 100, and the insurer deducted Rs.10 as ULIP charges and invested Rs.90 in the fund option, assuming the NAV of your units has grown to Rs.95 during this period, the insurer will have to refund Rs.95 plus Rs.10, but after deducting stamp duty, medical and mortality charges for the period from Rs 105.

Summary

• IRDA has introduced a customer-friendly review policy feature ie. Free-look period in insurance policy. If you have made the wrong choice, do not hesitate to return your plan using the free-look option.
• There are conditions though :
  1. This applies only to Life insurance policies and also to Health insurance policy that are for a term of at least 3 years
  2. You can exercise this option within 15 days of receiving the policy document. In case of online sale of policy, the free-look period of 15 days is extended to 30 days.
  3. It is the responsibility of the policyholder to prove the date of receipt of policy document.
  4. You have to communicate to the company in writing
  5. You will get refund of the premium adjusted for
     • proportionate risk premium for the period on cover
     • expenses incurred by the insurer on medical examination
     • stamp duty charge
• Insurance companies strive to ensure you buy the policy best suited for your needs. However, if terms of policies are not as per your needs, you can make use of the free-look period.