My friend Sanjay opted for a life insurance policy as his advisor had promised returns in the range of 14%-16%. He was very excited about the returns that was promised to him and was looking forward to it. Sanjay received a big shock when he received the policy bond since his advisor had duped him and he was sold an endowment policy. Though Sanjay was not a financial buff and was not much aware about financial returns, one thing he knew for sure, that an endowment policy can never give him a return of 14%-16%.
The period between January till March is considered as Tax Saving month and everyone wants to save in 80C, 80D and other investments. Though there are several options to save tax under section 80C & 80D such as home loan principal, ELSS mutual funds, health insurance for self, tuition fee of your children etc., Sanjay opted for a life insurance policy.
All in all, this was a bad choice of investment by Sanjay to save taxes.
Does Sanjay have an option to return the policy?
What is IRDA Free Look Period?
Yes, he definitely has an option to return the policy within the first 15 days of receiving the policy and 30 days in case the policy has been bought through distant marketing(Online Sales) . The term “Receiving” means when the physical copy or electronic copy of the policy bond has been delivered to Sanjay. This option is called as the Free Look Period and IRDA has built this into its regulations a consumer-friendly provision.
When does the free look period begin?
Free look period is the time period where the policy holder has the right to exercise his option as to whether he is willing to continue with his insurance policy. The free look period is permitted by the insurer and the free look period for any life insurance policy is limited to 15 days or 30 days in case the policy has been bought through distant marketing .
Why IRDA allows free look period cancellation?
During the this period, the person can request for cancellation or termination of the policy in case he is not satisfied with terms and conditions of the policy. IRDA allows free look period cancellation for the following reasons
The policy holder may not like a policy for several reasons
- The agent or representative might not have explained to the policy holder about the salient features of the policy
- The advisor might not have explained about the charges of policy
- Term of the policy
- Maturity benefits
- Premium amount
- Risk coverage
Insurance Policy Cancellation Charges
For cancellation of such contracts during the free look period, the policy holder need not pay any surrender charges.
The insured can get a full refund of the premium paid for his policy except the following charges as per IRDA
The premium refund will be adjusted for
- Proportionate risk premium for the period on cover
- Expenses incurred by the insurer on medical examination and
- Stamp duty charges
Does Free Look Period apply to both Life Insurance and General Insurance?
It applies to all life insurance policies.
In case of general insurance policies, it applies to only health insurance policy which has a coverage term of 3 or more years.
Documents Required for Free Look
- Original Policy Bond
- First Premium paid receipt
- Identity Proof of the Policy Holder
- Cancelled Cheque of the Policy Holder
How to encash this?
- This period is available to all health insurance policies and life insurance policies. It is one golden opportunity available to the policy holder to review the policy.
- Usually it is applicable to life and health insurance policies which has a minimum term of three years.
- The period starts from the day the policy is received by the insured.
- Physical copy of the policy should be delivered to the insured. Any delivery of policy documents by an electronic medium such as e-mail etc. is also valid.
- The period is 15 days in both life and health insurance policies if the mode of purchase is not online and 30 days if the mode of purchase is online
- The terms and conditions should be read in detail by the policy holder during this period.
- In case of any clarifications, the policy holder should take time to discuss such issues either with the agent or with the insurance company.
- In case the policyholder is not satisfied with one or more of the terms and conditions of the policy. He can intimate the insurer for cancellation of the policy and request for a refund of the amount paid.
- On receiving an intimation for cancellation of the policy from the insured, the insurer will follow necessary steps required to refund the premium amount after adjustment of cost of pre-acceptance medical screening, if any; stamp charges paid for the policy and proportionate risk premium for the policy on cover; provided no claim has been made by the insured on the policy till the date of cancellation of the policy.
In cases where the insured fails to review the terms and conditions of the policy during the this period, he loses his right to cancel the policy and get back the amount of premium paid. In cases where the insured cancels an insurance policy in the future after the free look period, he may either be refunded with a meagre amount or nil amount.
Free Look Period in Term Insurance
If you have bought term insurance through some agent, free look period is 15 days after you receive the policy. But, if you have purchased term insurance through online, the free look period is 30 days.
Free Look Period ICICI Prudential/HDFC Life/ Kotak Life Insurance /Max Life Insurance
As per IRDA, the rule is applicable to all life insurance companies whether it is ICICI Prudential/HDFC Life/ Kotak Life Insurance /Max Life Insurance.
A big question here is
What if your advisor has taken the policy bond from the insurance company and is delivering it to you after 15 days. Though legally not permitted, it is a common practice followed by many advisors in insurance companies. So it is always adviseable to keep a track of the policy. Most of the insurance companies will send you an e-mail and message regarding issuance of policy.
Otherwise, insurance companies will not entertain your request for the free look period.