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Wednesday, October 5, 2016

Free look period of an Insurance Policy

A good merchant gives you some time to review your purchases and exchange them if you are dissatisfied. Your bill, other than costs, also mentions the terms and conditions and the time period during which you can bring the goods back for an exchange. A similar practice is prevalent in the insurance industry as well, but here it's a mandatory condition that insurers have to follow. By law, they are required to give you a window, or what's also called the free-look period, to review your policy and if you are dissatisfied, return it and get your money back. Free-look is an important feature as it gives you a second chance to review your policy and understand what you have bought and also return it if you feel you misunderstood or were missold the plan. Here is more on free-look period in life and health insurance policies.

In Life Insurance
The process of buying a life insurance policy starts with filling up the proposal form. The form tells the insurer all that it wants to know about you in order to insure you. You would also need to submit additional documents such as proof of income and other know-your-customer (KYC) details. Often, at this stage, you also pay the first-year premium for the policy. After this, depending on factors such as the product you have chosen, your age and the sum assured, the insurer may ask you to undergo medical tests. These tests are paid for by the insurer. Once the insurer agrees to insure you, it will dispatch the policy documents. The free-look period kicks in from the time you receive the policy document. The insurer has to give you a window of 15 days to review the policy documents. If you are not happy, you can return these. The insurer will then ensure that you are within the 15-days window and then subsequently deduct costs for insurance cover for that time, stamp duty charges for issuing a policy bond and costs of medical check-ups, if any, and reimburse the difference.

In Health Insurance
Health insurance policies, too, are required to offer a free-look period of 15 days. Typically, health cover is an annual contract, which you renew every year. Free-look only applies to the first-time purchase and not to renewals. It kicks in from the time you receive policy documents. If you return the policy during this time, the insurer will pay the premium net of costs such as stamp duty and insurance for the days you were covered. Unlike life insurance policies, the insurer bears at least 50% of the cost of medical tests for medical plans that are renewed every year. This cost which will be deducted from the premium as well when it returns the money if you return the policy. Health plans such as indemnity policies, defined benefit policies such as critical illness plans and personal accident policies come with a 15-day window. But there is one exception to the rule. If the policy is issued for a period of less than a year, then the free-look rule is not applicable. Shorter-duration plans are, typically, travel insurance policies given for durations of less than a year.

The period depends on the number of days of travel. But if you have a travel policy that covers you for a year, as is with travel insurance for students, the free-look applies.

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