A large number of policyholders in India are often unaware of the exact type of life insurance they have purchased. Many struggle to distinguish whether their policy is an endowment plan, money-back policy, or whole-life cover. This lack of awareness makes them vulnerable to mis-selling.
The fact that mis-selling happens in the insurance industry is an understatement. Unfair business practices form 20 per cent of the total grievances as per IRDAI’s annual report of 2023-24.
Often, doubts creep in immediately after purchasing a policy. Many assume that once the policy is issued, there is no way out. But that’s not entirely true. The insurance regulator has provided a small but powerful exit route known as the Free Look Period. It is the window within which a policy holder can cancel his or her life insurance policy.
Here is how it works:
Refund: The insurer refunds the premium paid, after deducting costs such as:
- Duration: 15 days for policies purchased in person, and 30 days for electronic or distance-mode purchases.
- Refund: The insurer refunds the premium paid, after deducting costs such as:
a. Expenses on medical tests (if any)
b. Stamp duty
c. Proportionate risk premium (for the days the cover was active)
- Condition: The policyholder must not have filed a claim during this period.
- Action: The policy document must be returned to the insurer within this window.
Fix Mistakes Early
Mistakes in financial decisions are normal. What causes lasting damage is procrastination in fixing those mistakes. Using the free look period helps policyholders avoid being locked into unsuitable products for years.
The Smarter Next Step
If you ever doubt your decision after buying a life insurance-cum-investment policy, don’t ignore your instincts. During the free look period:
- Re-read the policy carefully and if it meets your needs.
- Seek unbiased guidance from a SEBI-registered investment adviser.
- Exit the policy if it does not align with your goals.
To conclude, insurance should give you peace of mind, not regret. Make judicious use of the free look period to secure your finances and make sure every rupee you invest works in your best interest.