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

source: symboinsurance

Insurance plans are an essential inclusion in your financial portfolio. These plans guarantee protection for you and your family from various situations, covering expensive medical bills, accidental damages to your car, etc. These polices more or less function in a similar way. However, some policies like ULIPs can be complex to understand and also have expensive premiums.

So, understand their functioning and benefits, many insurers offer a free look period for these policies. A free look period in ULIP is a window that lets you cancel a policy without losing the premiums you paid. Here is what you need to know before applying.

A free look period is a period of 15 days from the day of purchasing a policy, during which you can cancel or return said policy. You will also be entitled to get a refund of paid premiums. A free look period is applicable for life insurance plans and health insurance plans with at least three years terms.

Many insurers also extend this period to 30 days for online policies. Therefore, before purchasing any policy, you must carefully read its terms and conditions.

In general, an insurer will contact you after you claim a refund to understand your reasons, and if you wish to proceed with your claim, they will initiate a refund. Note that the refund comes with deductions, including stamp duty charges and expenses incurred by them, like medical costs.

A free look period in ULIP varies slightly from those of standard insurance policies. If you realise that your plan does not fulfil your expected goals, you can claim a return during this time. You will be entitled to a refund minus stamp duty charges and medical costs, similar to regular insurance policies.

In addition, there will be deductions based on the current net asset value. Your refund will depend on how your chosen funds perform in the market. Furthermore, an insurer can repurchase the units at the prevalent price on the day of the policy's return.

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.
• To rectify inefficiency in understanding or demonstrating the features and benefits of an insurance plan by an agent.
• You can get an extra window to cancel a plan that seems unfitting after purchasing.
• To utilise the 15-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.

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 on the day you receive the policy papers. This period lasts up to 15 days and, in a few cases (online insurers), for 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 15-day free look period, reducing 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.

This article illustrates the use and importance of the free look period in ULIP. It not only buys you time to go through your insurance term policies but also to assess the performance of the funds you invested in.

That being said, you must use this time for due diligence. Moreover, it would be wise to buy and return policies directly from your insurer without using an intermediary to avoid mis-selling and have more control over your purchase.