Did you know: You can cancel life insurance policy while free-look period?
By Deepak Yohannan
‘Buy an insurance policy, and you are stuck with it’, said Mr. X. ‘This is not like apparel that you can exchange because the fit is not right for you’. Right?
Wrong! A newly bought life insurance policy can be cancelled if the buyer is not happy with it. The Insurance Regulatory and Development Authority (IRDA) offers a provision whereby the dissatisfied customer can return a policy and get a refund if the policy does not match up to his expectations. The customer has a short window of opportunity called the ‘free-look period’ during which he must examine the policy bond extensively and decide whether to continue with it.
What is the free-look period?
This customer-friendly feature provides the policyholder a 15-day period from the receipt of the policy to decide whether to accept the policy or cancel it. If the policy is cancelled during this period, the buyer stands to receive a refund of the initial premium on returning the policy to the insurer. The free-look period applies to all life insurance policies and to health insurance policies with a minimum term of 3 years.
A free-look period protects a customer if s/he feels that the policy document is not what he signed up for. It also protects a customer from dangers of mis-selling. The free-look facility gives a customer an easy exit route out of an unsuitable policy, but s/he must act swiftly.
Are there any free-look cancellation charges?
A free-look cancellation does not involve penalties or other cancellation charges. You may not receive a full refund of your premium though, because the insurer will subtract expenses incurred during the medical examination, stamp duty and other administrative costs, and a mortality charge for the interim period. Nevertheless, these deductions tend to be minimal. In the case of a ULIP, movements in net asset value will be adjusted in the settlement.
Reading the policy document during the free-look period
Most customers have limited insurance knowledge. How can they decide on utility of a given policy?
1. Check that the names and contact details of all persons mention in the policy (policyholders, nominees, guardians, etc.) are correct.
2. Check that there are no discrepancies in policy terms, premium amounts, sum assured, etc.
3. If you signed up for a with-profits policy, ensure that this is mentioned in the policy document. Ascertain whether the profits are calculated on a simple reversionary or compound reversionary basis.
4. Examine the inclusions and exclusions of the policy.
5. Gain clarity about the claim settlement procedure and ensure that it works for you and your nominees.
The above are just a few aspects that you should examine. It is important to study the policy document with a fine-tooth comb to ensure that there are no discrepancies.
Free-look cancellation procedure
If you finally decide to exit the policy, do not depend on your agent. Call the insurer’s customer care right away to find out about the process. The cancellation must reach the insurer in writing before the end of the 15-day free-look period. The insurer will require you to fill out a cancellation form and return the original policy document. You may have to visit the insurer’s local branch to complete the formalities in person.
So, if you have a brand new policy in your hand, get ready to examine it thoroughly. The free-look period is ticking away.
(The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal)