To protect the interest of buyers of insurance policies, the Insurance Regulatory and Development Authority of India (IRDAI) has increased the free-look period from 15 days to 30 days. This will be applicable on both new life and individual health insurance policies from April 1, 2024.
A free-look period is a window in which you can cancel your insurance policy and get your money back (you would have usually paid the first premium while purchasing the policy) without incurring any surrender charges. How is the new rule going to impact insurance policyholders? ET Wealth Online explains:
Free-look period extended for insurance policies: What is going to change for insurance policyholders?
In a notification dated March 20, 2024, IRDAI said, “Every policyholder of life and new individual health insurance policies, except for those policies with tenure of less than a year, shall be provided a free look period of 30 days beginning from the date of receipt of the policy document, whether received electronically or otherwise, to review the terms and conditions of such policy.”
Till now, the 30-day free-look period was only applicable to policies sold in the electronic mode or through distance marketing; policies that were sold physically had a 15-day free-look period. Now, all such insurance policies will have a uniform 30-day period in which the policyholder can cancel the policy and get a refund of the first premium or any charges that have been paid. The subscriber need not pay surrender charges in this period.
“The insurer shall inform clearly and explicitly to the policyholder about the availability of the free look period,” the regulator said.
If an insurance policyholder disagrees with any terms or conditions of the policy, or has not made any claim, he or she will have the option to return the policy to the insurer for cancellation, stating the reasons for the same, IRDAI has said.
What are the charges a policyholder has to pay to return a policy within the free-look period?
A free-look period offers you (the policyholder) valuable time to meticulously examine the details of your life or general insurance policy documents. When you read the policy documents carefully, you may come across some terms and conditions that you were not aware of. If you have any doubts, don’t hesitate to reach out to a reliable expert or to your insurer for clarification on any such ambiguities.
But if the policy does not align with your requirements or long-term financial goals, you have the option to cancel it.
If you cancel the policy within the stipulated free-look period, you do not have to pay any surrender charges. The insurance company will refund your first insurance premium (after deducting certain charges) if you return your policy within the free-look period.
The charges that you have to pay despite the free-look period.
IRDAI has given clear instructions on what charges the insurer can deduct from a customer in case of policy cancellation during the free-look period. The regulator said, “Irrespective of the reasons mentioned, the policyholder shall be entitled to a refund of the premium paid subject only to a deduction of a proportionate risk premium for the period of cover and the expenses, if any, incurred by the insurer on medical examination of the proposer and stamp duty charges.”
What it means is that if the policy has run for, say, 20 days, the insurer is allowed to deduct the risk premium for that period.
“In respect of a linked insurance product,… the insurer shall also be obligated to repurchase the units at the Net Asset Value (NAV) of the units on the date of cancellation,” the regulator added.
Do keep in mind that the insurer has to process the refund and request to cancel a life or health insurance policy within seven days of raising the request.
Free-look period extended to 30 days: How is it going to help policyholders?
The extension of the free-look period for physical policies is undoubtedly a customer-friendly initiative, say experts. Several customers often complain that an agent or representative of a financial institution pressurised them to buy a policy and that they do not know much about the intricacies of the policy. Such customers now get a way to exit the policy and cut their losses.
“The laudable initiative by IRDAI to extend the free-look period to 30 days is a commendable step forward, enhancing consumer empowerment and fortifying the Indian insurance sector,” says Sanjiv Bajaj, Joint Chairman & MD, BajajCapital Ltd. ”This extension offers customers an extended duration to thoroughly review policy terms and conditions, thereby reducing the likelihood of mis-selling and fostering a culture of informed decision-making. By affording individuals more time to assess their policies, it can help minimise instances of regretful purchases and potentially decrease the number of policy cancellations, ultimately leading to higher satisfaction levels among policyholders.”
From an industry perspective, the initiative underscores a commitment to transparency, which could lead to a reduction in associated compliance costs, Bajaj adds.