Life and health insurance companies have expressed concern over the government's proposal to increase the free-look period (FLP) for private insurance companies from 30 days to 1 year. The companies say that if this proposal is implemented, it can lead to financial losses and these policies can also be misused. Currently, government life insurance companies like LIC provide a free-look period of 15 days on policies purchased offline and 30 days on policies purchased online.
What is Free-Look Period?
FLP is a grace period during which policyholders can cancel their insurance policy if they do not like it. As per the rules set by the Insurance Regulatory and Development Authority of India (IRDAI), on cancellation of the policy, policyholders get their money back after deducting the stamp duty and medical test related expenses. If policyholders feel that they have been sold the policy in a wrong manner, they can cancel their policy without surrender charges.
Why is the industry troubled by the government's proposal?
The government recently proposed that the free-look period for private insurance companies be increased from 30 days to one year, so that mis-selling of policies can be stopped. Hanut Mehta, founder and CEO of BimaPay Finsure, says that if this proposal is implemented, then it may be right to increase this period to one year for life insurance but it will not be right for health insurance because it is renewed every year.
Agents get up to 40 percent commission on insurance policies. Apart from this, there are also marketing and administrative expenses. Insurance companies say that if the free look period is extended to one year, it will become difficult to cover these expenses. Apart from this, there may also be a negative impact on the persistence rating, which tracks how many percent of policyholders maintain their policy over time. Another problem is that if this period is increased, agents can encourage policyholders to cancel the old policy and take a new policy.
