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A 15-day 'free-look' period offers policyholders with the liberty to surrender the scheme if it fails to meet expectations
The biggest advantage of shopping for clothes, bags and accessories at outlets with a well-defined exchange or refund mechanism is the assurance of peace of mind. If the product fails to meet your expectations, you can always get it replaced or ask for a refund.
A similar practice also exists in the insurance industry. Termed the 'free-look' clause, it was introduced by the Insurance Regulatory and Development Authority of India (Irda) to provide succour to policyholders who have been victims of mis-selling. The clause allows policyholders to surrender the policy within 15 days after receiving it if they are not satisfied. This is applicable to health covers, with a tenure of three or more years, and life insurance policies.
Yet, grievances abound about policyholders being lured into buying policies with tall promises of spectacular returns by agents. One reason for such heartburns could be the lack of awareness about the free-look period. Another could be the withholding of policy pack by some agents to ensure that the period lapses. The agents benefit by way of continued commission inflows.
The Workings
According to the 'free-look' clause, the insurer should refund the first premium paid, after deducting the charges it has incurred, like on stamp duty, costs of medical tests and risk premium, for the period. Now, the premium applicable for the period is determined primarily on the basis of the policyholder's age, sum assured and the insurer's underwriting norms. In fact, some companies even choose to waive of the proportional risk premium (as applicable for 15 days).
The payout methodology differs slightly for traditional and unit-linked policies. The deduction philosophy is the same for both traditional and unit-linked policies — i.e expenses incurred on medical examination, mortality charges and stamp duty are deducted. The calculation methodology for traditional policy is based on the premium paid. However, for unit-linked policies, it is based on the fund value.
The 'premium' method for traditional policies involves simply refunding the premiums minus the deductions. When it comes to Ulips, the calculations can be a bit complicated.
For instance, say you had paid . 100 as premium and the insurer had invested . 80 after deducting . 20 as charges. Now, if you decide to cancel the policy by enforcing the free-look clause and the fund value has swollen to . 85 during this period, the insurer will have to return . 85 plus . 20, but after deducting stamp duty, medical and mortality charges for 15 days.
Exercise Caution
However, there have been instances of unscrupulous agents and distributor banks having sought to deprive policyholders of this comfort.
There are no mandatory norms from the regulator governing intermediaries for dispatching policy documents. There are some overall guidelines on the maximum time a company can take to dispatch a policy. If the document is sent through an agent, he/she needs to get a policy acknowledgement receipt to prove that it was delivered to the policyholder on a particular date. If the agent is unable to produce this receipt, generally, we give the benefit of doubt to the policyholder. A key point to be kept in mind is that the free-look period starts from the date of receipt of the policy and not from the date of issue. So, if you have not acknowledged the receipt, the company can't wash its hands off the matter. But, if the company has sent it directly to you via courier services, even proof of delivery will serve as acknowledgement.
The best way to avoid such hassles is to scan the policy brochure and the benefit illustration carefully before signing up for the policy itself. If you have not done so, however, you should ensure that you do not repeat this mistake during the 15-day period. To start with, you should make it very clear to the company that the policy should be sent to you directly and not through the agent. Many insurers also send a copy of the proposal form to the policyholder along with the policy pack to enable cross-verification. This ensures that the policyholder knows what he/she has signed up for.
Scrutinise Policy Conditions
Once the policy document reaches you, carry out a basic check to ascertain the accuracy of your personal information like name, date of birth and contact details. Next, make sure that the nominee's name, sum assured, premium amount, policy tenure and premium payment term are in order.
The latter is particularly important as it is not rare to see agents selling long-term policies as five year ones. The benefit illustration is another key document that you need to study, for it indicates how your money will grow year on year as well as the cash surrender value should you decide to terminate the policy before completion of its intended tenure.
They should also verify the mode of premium payment mentioned, as it could become a bone of contention. For instance, it is possible that the customer had asked for a yearly premium, but the agent ticked the half-yearly mode box instead. Remember, an incomplete form or one containing error could result in the claim being rejected. In more than 80% of cases where claims are repudiated, incorrect information is the cause. Therefore, it is wise to shed lethargy or fear of cumbersome paperwork and do it yourself – else, at least use the 15-day window to study the policy document and take action.
Life Insurance Policy
Exercise the trial-period offer to study the policy and get rid of a 'mis-sold' product
Every Life Insurance Policy has the Free-look Period
Every life insurance contract allows the policyholder to return the policy within 15 days of having received it. This is referred to as the free-look period
If you decide to surrender the policy during this period, the company is required to refund the first premium paid
However, all the charges incurred by the insurer will be deducted before the premium is refunded These could include stamp duty charges and cost of medical tests conducted before the policy was issued Also, your premium will not be refunded in its entirety. The amount applicable to the period the policy was in force will be deducted In case of a Ulip, the company will repurchase the units and refund the fund value, but the risk of fluctuation in the NAV (net asset value) will have to be borne by the insured
While most life insurers dispatch the policy directly to the insured, some companies route it through individual agents or distributing banks
At times, unscrupulous entities keen on covering up their misselling refrain from handing over the policy document to the insured during the free-look period.
Therefore, it is best to insist that the company send the policy document to your mailing address.
Also, you can approach your insurer directly and ask for a status update if your agent has failed to deliver the policy document within a reasonable period after the first premium is paid
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