Let’s understand first: What is freelook? After buying a policy if the policy holder finds out that the policy features, terms and conditions does not suit his needs, policy holder can cancel the policy within a specific time period. This time period is called freelook period. Which means, the cancellation of the policy to the insurer have to be done within the free look period, to get a refund of premium paid from the policy.
Insurance overall is a push product in India. In India majority of the population do not have the awareness of having a life insurance. Post death financial planning for family, increasing medical expense, loss of house property due to some accident…..are still a unwanted uncomfortable topic for general population. As a result of which less than 10% Indian population is having insurance specifically Life insurance. This means, the insurance product is pushed to policyholders through various channels. Due to this, most people buying a policy with lack the proper understanding of the insurance product and end up choosing the wrong policy. Customer becomes vulnerable due to lack of knowledge. So they end up purchasing a policy as per the need of the seller instead of own need.
To help policyholders in such situations, insurance regulator IRDAI has brought in a consumer-friendly provision — free look option within a specific period – wherein, if a policyholder has bought a policy and then realizes he does not want it, can return it and get a refund for it.
This especially helps people who after buying a policy find out that the policy terms and conditions do not suit their needs OR mismatch in committed benefits with real benefits. This way policyholders can come out of the wrong policy and save hard earn money. However, the cancellation and return of the policy to the insurer have to be done within the free look period, to get a refund from the policy.
Here is how the free look period works:
Even though the free look period was introduced to help policyholders, it comes with certain conditions. For instance, all insurance policies do not have a free look period option. The free look period option is applicable to almost 100% of life insurance policies and health insurance policies.
An insurance policy with a free-look period usually offers 15 days after receiving the policy document to review a newly-issued policy. If the terms and conditions aren’t acceptable to the policyholder, they can return the policy during the free-look period and the insurance company pays back the premium. Few areas customer must check immediately after receiving the policy bond:
- Policy feature & benefit preached matches exactly with policy bond
- Premium amount
- Premium paying term
- Policy term
- Height/weight
- Profession/earning
- Signature verification
Some insurance policies bought online offer a free look period of 30 days after receiving the policy document. The policyholder if unsatisfied with his/her policy and wants to return it, needs to inform the insurance company in writing, it should not be communicated orally. It is always advisable to take personal initiative and personally do the cancellation if required.
However, note that the insurance company pays back the premium after deducting certain expenses such as the medical examination expenses if any, tax, and any other charges. As per the IRDAI guidelines, the insurer reserves the right to deduct the expenses incurred, if any, on medical examination.
In the case of ULIP policies, the refund is based on the NAV (unit value). Some insurers also deduct stamp duty charges and then pay the net amount post these deductions to the policyholder’s registered bank account.
It is evident that need of cancellation post buying a policy causes lot of stress to the customer. To avoid facing such situations, it is better to take an expert’s advice, be it from a financial advisor or an insurance expert, before opting for a policy.
