How to Cancel Life Insurance Policy Within Free-Look Period?

The free-look period is the time of the policy when you can cancel an insurance policy without incurring any costs. A big relief, right? 

But how do you actually cancel your policy? Is there a procedure, and are there any precautions to be taken?

In this blog, we will walk you through the procedures involved in cancelling a life insurance policy within the free-look period and avoid any unnecessary penalties.

What is the Free Look Period in Life Insurance?

The free look period in life insurance can be compared to a free trial for your policy. It is usually a period of 15 to 30 days, during which you can review the policy terms and determine whether it is suitable for you. 

This way, if the policy doesn't convince you for any reason within that time frame, you are allowed to withdraw it. 

Now, you must be wondering:

“What about the premiums paid?” 

“Will I get a refund if I cancel the life insurance policy within the free-look period?”

The refund amount is calculated on a pro-rata basis, according to the days the policy was active. If the insured has gone through a medical examination, the costs for the tests will be deducted from the total refundable amount, along with stamp duty charges. 

In unit-linked insurance plans (ULIPs), the refund amount varies depending on market conditions at the time of policy cancellation. 

When you cancel a ULIP, the insurer will buy back the units allocated to your policy at the current net asset value (NAV) on the day of cancellation. This means if the market has gone up, you will receive more money than you initially invested. However, if the market has gone down, you could get back less than what you paid.

This is an ideal option to make sure that the policy is tailored to your needs, and if your situation changes or you simply change your mind, you can back out risk-free.

Purpose of a Free Look Period

The free look period in life insurance is designed to give policyholders some extra time. Its main purpose is to let you:

• Assess the Policy: It allows you to review the policy, including the terms and conditions, to ensure that the policy is in accordance with what you need and expect.
• Compare with Other Options: You have ample time to compare different plans in the market and find the best one that fits your budget. 
• Make an Informed Decision: Lastly, it enables you to understand whether or not the policy in question is in your best financial interest and aligns with your other life goals. 

The free look period provides a stress-free timeframe, making sure that you are indeed making the right decision without any rush.

Reasons for Cancelling the Life Insurance Policy During the Free-Look Period

There are quite a number of justifiable reasons why you might want to forfeit your life insurance policy within the free look period:

• Policy Mismatch: Perhaps the cover is not what you had in mind, or rather, the monthly premiums are far too expensive for your wallet.
• Unintended Features: Some insurance companies have policies that have extra riders or features apart from the ones you actually need and pay for.
• Health Changes: Paying the premiums might become a challenge if you are not able to earn steadily due to sudden health changes.
• Financial Hardship: Life is unexpected; you might have to prioritise other expenses and terminate your insurance policy.
• Better Alternatives: You may have discovered another life insurance policy with better coverage, lower premiums, or more favourable terms. 

Steps to Cancel Policy During Free Look Period

If you've made the decision to cancel your life insurance policy within the free-look period, there is no need to worry, as it is quite easy! This is what you are required to do: 

1. Read the Fine Print: After you have received your policy, make sure you give enough time to read the entire document. This will allow you to understand what you are getting yourself into and confirm if it is not suitable for you.
2. Reach Out: Next, you can reach the customer care desk, or you can write a cancellation request. If you bought the policy from a broker, you should also contact the broker to initiate the cancellation. 
3. Get the Endorsement: After the request for cancellation has been received and processed, the insurance company will forward you an endorsement letter indicating that cancellation has taken place.
4. Wait for the Refund: Your premium refund should reach you within seven to ten business days, excluding stamp duty and medical checkup costs. 

Just a friendly reminder: it is vital to note that you can only cancel during the set free-look period! 

Let's understand what happens if you cancel your policy after the free look period –

What Happens if You Cancel Your Life Insurance After the Free-Look Period?

As already stated above, the free look period generally varies between 15 to 30 days from the policy commencement date. 

If you cancel the plan after the free-look period, the process and consequences can vary depending on the type of life insurance policy you have. Here are some general outcomes to consider: 

• For some plans, like term life insurance plans, no refunds will be provided. The insurance coverage ceases, and you forfeit the money paid up to that point.
• Surrender charges are deducted from the cash value. The company often retains part of your premium as a surrender charge if you terminate the policy in the first year. 

If you have paid your premiums in advance, the insurer will subtract the premium for the period of cover and refund the rest. Also, “surrender value” (a benefit given at the time of policy surrendering) will only be given if at least 3 to 4 policy years are completed. (exact timeline depends on the respective plan)

• Surrender charges are deducted from the cash value. The company often retains part of your premium as a surrender charge if you terminate the policy in the first year. 

So, cancelling your policy after the free-look period is a bit more complex than when you were in the free-look period, but you still have some refund options. 

Things to Keep in Mind While Cancelling Life Insurance Policy

Thinking about cancelling your life insurance policy? Here are some things to keep in mind:

• Know the Process: Every insurance provider has its own procedures and guidelines for cancelling the policy. This may include submitting the request in writing or even submitting the physical policy documents.
• Watch Out for Surrender Charges: There are some policies that, if you cancel before the policy term, may impose high surrender charges.
• Review Your Coverage Options: If policy price is the cancelling factor, then rather than cancelling, you can consider cutting down your coverage or looking for a cheaper and more suitable form of coverage.
• Get Professional Advice: If in doubt, you can always consult any financial advisor to provide you with more insight. They can help you make the best decision for your situation!

Conclusion

Cancelling a life insurance policy during the free-look period is an easy task, but it is crucial to follow the right steps so that everything goes smoothly.  It doesn't matter if it's a better offer or you just declined to purchase insurance; this limited period prevents you from incurring costs that you'd rather avoid. 

Just keep in mind that there is a cut-off date, and it is wise to submit all the necessary documents timely to avoid any complications.

If you still have questions or wish to get more assistance, you are advised to seek the help of a qualified life insurance agent to make the right financial decisions.

Frequently Asked Questions

Ques 1. I have missed my policy's free look-up period. Can I still cancel my policy? 

Ans. If you miss the free look period, the policy can still be terminated, but surrender charges will be imposed, which will affect the total amount of the refund. 

Ques 2. Do I need to submit any papers for the cancellation?

Ans. Yes, you will probably need to write a request letter to terminate the policy and may even have to surrender the policy documents as well.

Ques 3. Are there any penalties for cancelling during the free look period?

Ans. No! When you decide to terminate your coverage during the free look period, no penalties will be imposed, and your money will be refunded, excluding underwriting and other charges. 

Ques 4. Can I port my policy before the end of the free look period?

Ans. No, the free look period only allows you to withdraw from the contract without penalties totally. Policy porting is typically only allowed when you are renewing the policy.

Ques 5. Where can I check if my insurance policy has a free look period?

Ans. You can find detailed information about the free look period in your policy brochure or document under the head “Free Look Period”. You can also connect with your insurer for assistance.