What is Free Look Period in ULIP and How to Use It?

Have you ever bought a new insurance policy and then had second thoughts? Maybe you found better options, or the policy wasn't exactly what you expected. This is where the free look period comes to your rescue, especially regarding ULIPs (Unit Linked Insurance Plans). To address this concern, regulators have introduced the concept of a free-look period. This period lasts for 30 days.

In this article, let’s understand everything you need to know about the free look period in ULIPs and how to make the most of it.

The free look period is a specified time frame during which policyholders can review their ULIP policy and decide whether they want to continue or cancel it without significant financial penalties.

The Insurance Regulatory and Development Authority of India (IRDAI) mandates that all life insurance companies, including those offering ULIPs, provide this benefit to customers. This period typically lasts 30 days from the date of receiving the policy document.

You will also be entitled to a refund for paid premiums. Therefore, before purchasing any policy, you must carefully read its terms and conditions. Generally, an insurer will contact you after you claim a refund to understand your reasons. If you wish to proceed with your claim, they will initiate a refund.

Note: The refund comes with deductions, including stamp duty charges and expenses incurred by them, like medical costs.

The free look period acts as a safeguard, allowing policyholders to:

1. Understand the policy terms and conditions and whether it meets their financial goals.

2. Determine if the investment strategy aligns with their risk and financial needs.

3. Exit the plan with minimal charges if they find discrepancies or change their mind.

The benefits of the free look period in ULIP are manifold. Here is why you need a free look period in ULIP:

• To avoid mis-selling, especially when you buy insurance from an agent instead of the insurer directly. 
• In many cases, policies may be sold without fully explaining their terms, or the buyer may not entirely understand the product. The free look period provides a safety net, allowing policyholders to back out if they feel misled.
• Investing in ULIP involves long-term commitment. The free look period gives investors the opportunity to reassess whether the plan aligns with their financial objectives.
• To utilise the 30-day window to properly go through the policy features and ensure that you have chosen a suitable one.
• ULIP refunds depend on how your units are performing in the market. Therefore, one can also use this window to measure the fund's potential.
• Exiting a ULIP after the free look period may involve surrender charges, which can erode your investment. Reviewing the policy during the free look period helps prevent such losses.

1. Read the Policy Document Thoroughly

When you receive the policy document, don’t rush to put it away. Instead, take your time to read through every detail.

• Premium Allocation Charges: Understand how much of your premium goes towards investment and how much covers fees.
• Fund Options and Switching Charges: Check what types of funds you can invest in and whether there are fees for switching between them.
• Lock-in Period: Know how long you must stay invested before making withdrawals without penalties.
• Surrender Charges: Find out what fees apply if you exit the policy early.
• Life Insurance Coverage: Be aware of the amount of life insurance coverage you're getting.
• Terms for Partial Withdrawals: If you need to withdraw some of your money, look into the rules.

This helps you gain a clear understanding of the product and its implications on your finances.

2. Compare Policy Features

Next, assess whether the ULIP aligns with your financial goals. Ask yourself:

• If you are aiming to grow your wealth, does the policy provide equity funds that have high growth potential?
• Are there suitable debt fund options available if you prefer a safer investment?

Comparing these features helps you see if the policy meets your specific needs.

3. Seek Clarifications

4. Make an Informed Decision

After reviewing everything, decide whether to keep or cancel the policy. Think about these factors:

• Are the charges too high for what you’re getting?
• Does the policy offer enough life insurance coverage for your needs?
• Does the investment strategy suit your risk tolerance?

If you find the answers to these questions disappointing or raise concerns, consider using the free look period to cancel the policy and look for a better option.

Note: Keep in mind that there might be some deductions from the amount they return to you, such as:

• You will be charged for the part of the policy period you had active.
• Stamp duty charges (fees related to the policy documentation).
• If you underwent any medical check-ups as part of your policy, these costs may also be deducted.

Once all the necessary deductions are made, the remaining balance will be refunded to your bank account.

A free look period is a powerful feature during which you can assess the policy you purchased and weigh its benefits and necessity. Therefore, you must utilise this period efficiently.

Here are a few tips on things you can do to help you get optimum benefits out of this period:

Understand the Variables and Return Process in ULIPs

ULIPs are rewarding but complex insurance plans. While you enjoy the dual benefits of ULIPs, their return policies also vary compared to regular life insurance plans. Your insurer can repurchase these units based on the day’s current net price when you return the policy.

For instance, say you paid a premium of ₹1000, from which your insurer deducted ₹200 as charges and invested ₹800 in your choice of fund. Now, during a free look period, if the asset value of the fund increases to ₹1200, then on cancellation, an insurer has to provide a refund of ₹(1200+200) minus stamp duty charges and medical or mortality charges.

Note that ULIP’s refund policies may vary depending on the insurer. Therefore, use this period to understand all terms and conditions thoroughly.

Enter Your Correct Contact Details on the Form

While purchasing the policy, ensure that you have entered your details correctly in your application form. Incorrect or false entries may lead to the rejection of your refund claim. In addition, you must ensure to put your contact details in this form. Often, third-party agents put in their own contact numbers.

Consequently, when insurers call regarding a refund claim or any other purpose, they receive it, not you. Moreover, the insurance company may call after you buy a policy to explain its features, terms, returns, etc. Therefore, avoid letting agents take such calls to avoid miscommunication or false selling.

Note Delivery Date of the Policy Papers

A free look period for insurance starts the day you receive the policy papers and lasts up to 30 days.

Therefore, you must note the date on which you receive the policy. You can keep the envelope containing the papers, and remember to check the date when it is delivered. Refrain from signing on a back-dated receipt, as it will cut short your 30-day free-look period and reduce the refund/cancellation time, if applicable.

Cancel or Return Policy Directly through an Insurer

If you decide to return/cancel your plan, do not ask an agent to do it for you. It can lead to unnecessary delays in the process. Sometimes, agents may even hold back essential documents with them until the free-look period expires so they do not miss out on their incentive.

Therefore, it would be best to contact the insurance company directly to cancel your plan. After intimation, you must visit the insurance office and submit your application. Also, ensure a time-stamped receipt for application forms downloaded from the insurer’s website.

Do Not Expect a Full Refund of Premium

Although you are eligible for a premium refund after cancelling a policy during the free look period, you will not receive the full amount. In addition, certain deductions such as stamp duty charges, medical charges, taxes, and specific add-on charges will be made from the premiums you pay.

Moreover, for ULIPs, the deduction will be based on the current price of units on the return date and not on the purchase date. So, you must evaluate beforehand how much refund you will be entitled to.