The Free Look Period in insurance is a provision that allows policyholders to review their insurance policy after purchase and, if dissatisfied, to cancel it within a specified period without incurring any penalties. The insured will be allowed at least 15 days (30 days in case of electronic policies and policies sourced through distance mode) from the date of receipt of the policy to review the terms and conditions of the policy and to return the same if not acceptable.
As of 2024, IRDAI has extended the free look period from 15 days to 30 days to provide customers ample time to research and understand the policy they have purchased. The apex body has issued new guidelines regarding the Free Look Period aim to enhance consumer protection and ensure transparency in insurance transactions. The new guidelines include:
Duration: Extending the minimum duration of the Free Look Period from 15 days to 30 days, thus ensuring that the policyholders have sufficient time to review the policy terms and conditions.
Communication: Requiring insurance companies to communicate the existence and terms of the Free Look Period to policyholders at the time of purchase.
Refund Process: Establishing procedures for the refund of premiums paid by policyholders who choose to cancel their policies during the Free Look Period.
Documentation: Mandating insurers to provide all necessary documents and information to policyholders, facilitating an informed decision during the Free Look Period.
Exceptions: Defining exceptions or conditions under which the Free Look Period may not apply, such as in the case of term insurance policies with immediate risk coverage.
Actionable and Refund
If the insured has not made any claim during the free look period, the insured shall be entitled to—
A refund of the premium paid less any expenses incurred by the insurer on medical examination of the insured persons and the stamp duty charges or;
where the risk has already commenced and the option of return of the policy is exercised by the policyholder, a deduction towards the proportionate risk premium for period on cover or;
Where only a part of the insurance coverage has commenced, such proportionate premium commensurate with the insurance coverage during such period;
In respect of unit linked policy, in addition to the above deductions, the insurer shall also be entitled to repurchase the unit at the price of the units as on the date of the return of the policy.
Analysis of the Free Look Period Guidelines:
Advantages
Consumer Protection: The Free Look Period enhances consumer rights by allowing them to reconsider their purchase without financial repercussions.
Transparency: Guidelines promote transparency in insurance transactions, ensuring policyholders understand the terms and conditions of their policies.
Regulatory Compliance: Compliance with IRDAI guidelines enhances the credibility of insurance companies and fosters trust among consumers.
Consumer Education: The Free Look Period presents an opportunity for insurers to educate consumers about their insurance products and build long-term relationships based on trust and transparency.
Innovation: Insurers can innovate by offering user-friendly tools and resources to facilitate policy review during the Free Look Period, enhancing the overall customer experience.
Disadvantages
Potential for Abuse: Some policyholders may exploit the Free Look Period by purchasing insurance for short-term benefits without genuine intent, leading to administrative burdens for insurers.
Complexity: Compliance with regulatory requirements may increase administrative complexities and operational costs for insurance companies.
Litigation Risks: Disputes related to the Free Look Period, such as disagreements over refund amounts or eligibility criteria, can result in legal challenges and reputational damage for insurers.
While the Free Look Period in insurance, guided by IRDAI regulations, serves to protect consumers and promote transparency, insurers must navigate challenges such as potential abuse and regulatory compliance to leverage its benefits effectively. Freelook period is applicable for purchase of new policies and not on renewals. But there have been cases when insurance companies increased the premiums without giving all information in terms of break up, especially in floater policies or policies where the insured person is more than one or increased premium was auto debited. Though the guideline of a free look-up period during the renewal of the policy is not in place, it is recommended to extend the free look to 7 days, in case there is a change in the Insurance premium. Hope that IRDA will look into this aspect in future.