30 minutes nahin to Free!” When a popular pizza company says this, a lot of us (especially the really very hungry ones) reach out to place their order. The 30-minutes promise offers customers a great sense of comfort and they can now expect their steaming hot pizza to get delivered quickly. Similarly, Free-look Period Cancellation benefit in Insurance offers policyholders the comfort of returning the insurance policy if they find it not meeting expectations. Let’s see how.
How does Free-Look Period Cancellation work
When the policy docket arrives at your doorstep, there are a few things to check in the insurance policy contract. You need to go through in detail, the insurance contract, the policy certificate, the benefit illustration, product brochure, terms and conditions of the policy, etc. While in most of the cases everything is fine, in a rare few, there could be any of the following expectation gaps.
- What you have been told is not what has been sold
- The terms & conditions of the policy are not as per expectations.
- The features, benefits and policy exclusions, as understood by you are different from what is actually included.
- There could be any other reason for disappointment.
Luckily, help is at hand. The Insurance Regulator has stipulated that certain insurance contracts can be returned to the insurer under certain conditons, i.e. they can be cancelled. Here are the details.
How many days is the limit for Free-Look
When bought from an agent, bank or any other physical intermediary, the limit is 15 days from the date of receiving the policy document at your communication address. When bought online and/or tele-phonically, the Free-Look Period limit is 30 days. Also, please note that the period does not start from the Date of Issuance of the Policy but from the date you actually receive the policy document.
MintWise, being an IRDAI-approved Online Insurance Web Aggregator offers a 30-day Free-Look Period Cancellation benefit.
If you are unable to initiate Free-Look Period Cancellation within the relevant period, you can still cancel the policy later, however that is termed as Policy Surrender and very different rules will apply. Surrender of policy comes at a very high cost so if you really do intend to cancel, take your decision fast and ensure that you don’t miss the relevant Free-Look Period Cancellation deadline.
We strongly recommend that if you are indeed decided on opting for Free-Look Period Cancellation, do it yourself and do not rely on an intermediary (agent, banker, whoever you bought the policy from). Not that it is always the case but there have been instances when policyholders have not been able to exercise the option because of delay from the intermediary’s side. This has resulted in deep losses to the policyholder. Best avoided.
What kind of insurance policies are eligible for Free-Look
Not all kinds of insurance policies get this benefit. It is applicable only to the following.
- All Life insurance policies
- All Health insurance policies with a policy period of at least 3 years
What is the Free-Look Period cancellation process
If you want to exercise the right to cancel the policy within the Free-Look Period, you need to ensure that you do it in writing by submitting the same to the company within the stipulated time. Ensure that you get an acknowledgment from the company of having done so – it is very important. You may need this later if there is ambiguity over the cancellation request.
What are the charges for Free-Look Period Cancellation
Free-look is not 100% free like the pizza that came late! Charges will deducted by the insurance company before they refund you the premium you initially paid. Please note them carefully – all may not be applicable to you.
- Stamp Duty Charges – When a policy is issued, the insurer has to pay this amount to the exchequer. This cannot be refunded by the Govt to the insurer on cancellation of the policy. Hence it is not refunded to you. These charges are approximately 0.2% of the Sum Assured (life/health cover), not of the Premium.
- Insurer’s Administrative Charges : Scrutinizing your insurance proposal form, processing it through underwriting, issuing the policy, dispatch – all this comes at a cost. The insurer may deduct a nominal fee as administrative charges. There is no fixed rule – the amount or rate varies from insurer to insurer.
- Cost of Medical Tests : If your policy proposal involved a medical test, the company incurs them for you. If the policy is continued, the company bears the cost. But if you return/cancel the policy, you will have to take the hit from the premium paid. The amount depends on the kind of tests you have done and which medical center it was done at. If no medicals were done, nothing is deducted.
- Proportionate cost of Risk Cover : Please remember that from the date of issuance of policy till the date you submit the cancellation request, the insurance company has actually taken the risk of your death. This risk comes at a cost and is called the mortality/risk cover charge. A proportionate fee (depending on the no. of days) is deducted by the company for the period that you were covered for.
- NAV-adjusted charges (only for Unit Linked Insurance Plans – ULIP) : Cancellation of a ULIP policy is done by insurer by returning the exact no. of units allotted to the policy when the eligible part of premium was first invested. The impact to you could be either an increase in returned premium (if unit values have gone up) or a reduction (if the unit values have come down).
Free-look is the second opportunity you get to decide on an insurance policy (the first being when you decided to buy it). We strongly recommend that right at the time of buying you do a thorough need-based research and take an uninfluenced decision on your own. Buy right and breathe easy. The good thing is that in case things do go wrong at all (which in rare cases they do), we still have the Free-Look Period Cancellation option to depend upon, even if it comes at a small cost.