Life Insurance policies are vital parts of every financial portfolio. Various types of life insurance plans are available in the Indian market for policyholders. ULIP investment plans are one of them. They offer the right combination of insurance and investment for policyholders. You not only get life coverage throughout your policy tenure but also get an opportunity to earn returns from investments made in market-linked instruments like equity funds, debt funds, liquid funds, and hybrid funds.
Because ULIP returns depend on market conditions, staying invested for the long haul is essential to reap the rewards of your investments. However, before you get an insurance plan, you should know about the free look period. With insurers having varying terms and conditions, it may take you some days to fully understand the same, based on which you can make your decision accordingly. Here is where the free look period attains higher importance. So let us take a closer look at the same.
What is a Free Look Period?
This is a window of 15 days given to all policyholders, starting from the date of receipt of the policy in question. This is the period within which the policyholder can choose to return or cancel the policy for various reasons. The premium that has been paid will be refunded in this scenario.
It is applicable for both life and health insurance policies. In some cases, this period may go up to 30 days as well. Always double-check this time frame before you invest. Suppose you reach out to the insurance company for a cancellation and refund; then, they will ask for reasons behind the same. Once that is done, your refund should be initiated. However, a few deductions, like costs incurred for medical checkups and stamp duty, will be deducted from the refund amount. While ULIP investment plans are hugely popular in the market today, you should always keep a few things in mind within this free look period.
Mis-selling is more common than you think
To begin talking about the free look period, we must first understand why it is necessary. Mis-selling happens whenever any company agent or intermediary misrepresents the value and usefulness of a ULIP and its features to the policyholder. By the time you find out, the agent will have taken the commission, and you will be running out of options.
Insurance contracts are based on several abiding principles, including Utmost Good Faith or uberrimaefidei in Latin. This is automatically violated whenever there is any mis-selling of a ULIP or any other insurance policy. That is why the IRDAI has come up with the free look period for customers to carefully scrutinize their plans before going ahead.
Free look periods for ULIPs
If you bought a ULIP and then realized within the free look period that the features and returns do not match your expectations or what the policy agent informed you of, you can ask for a refund. Any additional costs and stamp duty will, however, be subtracted from this premium amount. However, there is an additional thing to keep in mind here.
Since ULIPs are also about returns from investments, a portion of the premium is used for buying units of various funds. Hence, when you cancel your policy, the deduction happens from the present NAV (net asset value) of the purchase and not from the premium you originally paid.
Best practices for a simple refund process
Here’s what you can do to ensure a simpler and non-complicated procedure for the refund:
- Give accurate details while buying the ULIP. You want to avoid tangles due to errors or typos.
- Note the policy’s delivery date and ensure that backdating is not there
- Cancel with the insurance company directly without contacting your agent or intermediary
- Always keep ULIP variables in mind while cancelling
- Ensure that the contact details given by the agent in the form are yours. Agents often provide their information, meaning that they take delivery of policy papers. This makes documents arrive late at your address.
Hence, you should pay attention to the free look period for ULIPs. This is when you should analyze the fine print and ensure you are getting what you expect. Keep the above pointers in mind for a smooth ride throughout.