NEW DELHI: Finance Minister Nirmala Sitharaman has proposed extending the ‘free look’ period for insurance policies to a full year, significantly increasing the window for policyholders to review and reconsider their purchases, according to CNBC-TV18.
The free look period allows policyholders to assess an insurance policy at inception and cancel it for a refund if they find the terms unsuitable. Currently, the Insurance Regulatory and Development Authority of India (IRDAI) mandates a minimum of 15 days, extended to 30 days for policies bought electronically or through distance mode. Sitharaman’s proposal would mark a major shift, giving policyholders a much longer timeframe to evaluate their coverage.
More time, more clarity
If implemented, the move could empower consumers by reducing instances of mis-selling and ensuring that policyholders fully understand their coverage before committing long-term. It would also allow them to obtain a full refund of premiums paid, subject to minor deductions like medical examination and stamp duty costs.
Refund and cancellation
Policyholders who decide to cancel within the free look period are typically entitled to a refund, with deductions depending on the coverage status:
Full refund: Premium paid minus medical exam and stamp duty costs.
Risk-based deduction: If the policy has already been activated, the insurer may deduct a proportionate risk premium.
Partial coverage deduction: A pro-rated deduction if only a portion of the policy coverage has commenced.
For unit-linked policies: Units can be repurchased at prevailing market prices.
Navigating cancellations
Policyholders must submit a written request specifying their reason for cancellation, along with policy details. Insurers often engage with policyholders to address concerns and explore alternatives before finalizing cancellations.
Industry experts believe that an extended review period could lead to better-informed decisions and fewer grievances over unsuitable policies. While insurers may raise concerns over potential churn, the move aligns with broader efforts to improve consumer protection in the insurance sector.
