IRDA Has Proposed to Revise the Free-Look Period for Insurance Policies

Here's what the proposal says:

1. The free look period for policies will extend to 30 days from the receipt of the policy document, regardless of the mode of acquisition.

2. IRDAI proposes the mandatory collection of policyholder or nominee information during the proposal stage to facilitate the electronic transfer of premium refunds.

3. No policy will be issued for life insurance unless the insurer obtains a nomination, which will be registered without additional cost.

4. General and health insurance firms should obtain nominations both at the issuance of new policies and during renewal.

5. Policies with a sum insured exceeding Rs 100 or those with a single or annual premium of no less than Rs 10 will be offered to customers in electronic format, regardless of whether they were initially received electronically or in physical form.

6. The requirement of filing advertisements to the Authority has been eliminated.

7. Insurers meeting specified solvency ratios, demonstrating profitability in three out of the past five years, and maintaining a satisfactory track record can now establish foreign branches, including offices at IFSCA (International Financial Services Centres Authority). Additionally, the regulator has removed the specified returns for foreign branches.

8. IRDAI recommends that insurance companies include necessary disclosures regarding outsourcing in their annual reports.

Among the important reforms outlined in the draft, the extension of the free-look period for insurance policies emerges as a crucial highlight. Currently set at 15 days, the proposed revision seeks to elongate this critical window to a more accommodating 30-day duration.

This extension offers policyholders ample time to meticulously assess their insurance contracts, empowering them with a broader scope for decision-making and ensuring greater alignment with their individual needs and preferences.

All varieties of life insurance policies, including term plans and whole life insurance plans, provide a grace period known as the free-look period. This free-look period commences immediately upon receipt of the policy documents.

Currently, IRDAI requires life insurance providers to grant a minimum free-look period of 15 days to policyholders. However, if the policy is acquired through remote or electronic means, the mandatory minimum free-look period extends to 30 days from the commencement of the policy.

According to the IRDAI circular dated February 14, 2024, every holder of life and new individual health insurance policies, excluding those with durations of less than a year, is entitled to a free look period starting from the day they receive the policy document, regardless of whether it is received electronically or otherwise. During this period, the insurer must clearly and explicitly inform the policyholder about the free look provision. The free look period for policies, obtained through any means, extends to 30 days from the receipt of the policy document.

During the free-look period, if a policyholder disagrees with any of the terms or conditions of the policy, they have the option to return the policy to the insurer for cancellation, stating the reasons for their decision. Upon cancellation, the policyholder is entitled to a refund of the premium paid, with only a deduction for the proportionate risk premium for the period of cover and the expenses incurred by the insurer for medical examination of the proposer and stamp duty charges.

[Also Read: How to Cancel a Life Insurance Policy Within the Free-Look Period?]

For linked insurance products, in addition to the deductions mentioned above, the insurer is also obliged to repurchase the units at the price of the units on the date of cancellation.

Any request received by the insurer for free-look cancellation of the policy must be processed promptly, and the premium refunded within 7 days of receiving such a request.

The move to extend the free-look period to 30 days for all life and health insurance policies is essential to address several key challenges faced by customers in the insurance sector.

Firstly, the complexity of insurance policies, with their numerous conditions and exemptions, often makes it difficult for customers to fully comprehend the coverage they are purchasing. By providing a longer free-look period, customers have more time to review the policies in detail, ensuring they understand the terms and conditions thoroughly.

Moreover, the rush to purchase insurance policies, particularly towards the end of financial years, can lead to hasty decisions based on incomplete information or misunderstandings. Extending the free-look period allows customers to take a more considered approach to their purchasing decisions, reducing the likelihood of buyer's remorse or dissatisfaction with their chosen policy.

Furthermore, the receipt of the policy document is often the first time customers are exposed to the intricate details of their insurance coverage. Given the complexity of certain products, it can take time for customers to digest and comprehend the finer points. The extended free-look period provides customers with the necessary time and space to review the policy document thoroughly and seek clarification on any aspects they find confusing or unclear.

This proposal offers several benefits to the policyholders:

1. Extended Evaluation Period: The extension of the free look period from 15 days to 30 days provides policyholders with more time to thoroughly review their insurance policies. This longer duration allows for a more comprehensive assessment of the terms and conditions, ensuring that policyholders have adequate time to understand the coverage, benefits, and limitations of their insurance plans.

2. Enhanced Convenience: Mandating the collection of bank account details during the proposal stage facilitates electronic refunds and claim payments. This streamlines the process, making it more convenient for policyholders to receive refunds and claim settlements promptly, without the hassle of physical paperwork or delays associated with traditional payment methods.

3. Nomination Requirement: Requiring nomination for policy issuance ensures that policyholders can designate beneficiaries to receive the benefits in the event of their demise. This provision offers peace of mind to policyholders by ensuring that their loved ones are protected financially.

4. Digital Accessibility: The issuance of insurance policies in electronic form makes them easily accessible and convenient for policyholders. Electronic documents can be stored securely and accessed anytime, anywhere, providing greater convenience and reducing the risk of document loss or damage.

Extending the free-look period to 30 days for all life and health insurance policies is a necessary step to empower customers with the time and information they need to make informed decisions about their insurance coverage. It enhances transparency, reduces the risk of misunderstanding, and ultimately strengthens consumer confidence in the insurance sector.

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KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

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