Good news, insurance buyers! Proposed 12x increase in free-look period may help you pick best policy—and patiently

In a big relief for the insured, the Narendra Modi 3.0 government has proposed to increase the free-look period from 30 days to 12 months—a 12 times increase from the timeframe currently available to insurance buyers to cancel a policy without bearing penalty. Experts say this is a significant move that can boost competition in the country’s insurance space while enabling customers to course-correct after picking a policy. Currently, a customer picking up an insurance product has only 30 days to change their decision without paying money in the form of penalty or surrender charges.

According to Finance Minister Nirmala Sitharaman, the government has directed private sector insurance companies to extend this period to one year from one month.

What is the free-look period in insurance? How does it impact policyholders?

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In insurance parlance, a free-look period is a timeframe that enables a customer to review and cancel an insurance policy without having to bear penalty charges.

When does the free-look period begin?

The free-look period begins only when a customer receives policy documents after buying an insurance plan.

What is the free-look period at present?

Currently, the insured are provided 30 days from the date of receiving policy documents to review an insurance plan without paying penalty.

With effect from April 1, 2024, insurance regulator IRDAI extended a 15-day free-look period to 30 days. Originally, the insured were provided 15 days to review a policy, and up to 30 days in case of electronic policies and those purchased through distance mode.

How does the free-look period help policyholders?

A free-look period is an important option for the customer as it enables them to discontinue a policy if dissatisfied. This feature also allows policy buyers to get a refund of their first premium.

Having a free-look period especially helps in cases where policyholders have not fully understood the terms and conditions of the policy purchased. Many a time, customers purchase policies through agents and are not fully communicated the policy features in detail. Several instances have been reported in the past where agents or banks lure customers to insurance products by giving incomplete or misleading information.

How will a 12x longer free-look period help insurance buyers?

If implemented, the proposed 12-month free-look period will help customers in a big way.

Such a move will ensure that customers:

• get ample time to study and understand the policy documents, including terms and conditions;
• avoid falling prey to to impropriately sold insurance products;
• are able to course-correct in case they end up buying insurance products that do not meet their expectations after the purchase, and
• get any premium paid by them fully refunded in case they find that the policy is not up to the mark.

Can policyholders exercise the free-look period to surrender/cancel a policy?

A customer can cancel an insurance policy by taking the following steps:

• The customer has to give a written application to the insance provider.
• The application must clearly mention details such as the date of purchase, the reason for cancellation and information about the agent.
• However, the insurance company may contact the customer to arrive at a mutually agreeable solution.
• If the customer is still disassisfied, the policy can be cancelled wherein the insrunace company refunds the full amount of premium to the customer.

Other important government measures insurance policyholders should know

The central government has taken a number of steps to enhance transparency in the domestic insurance space. These include:

• Call Back Facility: It has directed public sector insurance providers to call the customer to note their feedback about a policy sold to them. This facility is aimed at preventing Misselling.
• Only Trained Agents Can Sell Insruance: It has mandated that banks and other financial institutions deploy only trained agents to sell insurance products.
• Increased FDI in Insurance: The Budget 2025 has proposed to allow 100 per cent FDI in the insurance sector from the current 74 per cent.

Centre to Extend Insurance Free-Look Period | What experts say...

According to Department of Financial Services (DFS) Secretary M Nagaraju, the proposal is aimed at cementing customers’ trust and boost transparency in the country’s insurance sector.

Conclusion

Buying insurance is an important decision that determines policyholders’ financial future. This is why it is paramount that customers get ample time to study a financial product’s features and only then decide to buy it. If the proposed increase in the free-look period becomes a reality, it will not only bring a big relief to policybuyers but also boost transparency in the space, say experts.