Term life insurance policies come with many different provisions, but perhaps the most important is the free look period of life insurance contracts. The free look period, or free look provision, is a period of days from the beginning of the policy that the policyholder can change his or her mind. If they would like to cancel the policy during the free look period they are free to do so with no obligation. All premiums paid are returned, and the insurance company will treat the contract as if it never existed. This gives the buyer a way to back out of a contract that they had second thoughts about or realized that the did not need.
What are the Details of the Free Look Period?
First of all, the details of any life insurance policy vary from state to state and insurance company to insurance company. In general, the free look period of a life insurance contract is anywhere from 10-30 days from the policy's effective date. If the purchaser has cold feet or buyer's remorse during that time, the free look period allows them to cancel the policy.
Most insurance companies require that this cancellation be made in writing. If you are unsure of the protocol for cancelling a policy during the free look period, contact the life insurance sales agent that sold you the policy. They should be able to let you know how to cancel your policy. The sales agent also should be able to help facilitate things should you be nearing the end of the free look timeframe.
When the free look provision is exercised, all premiums are returned, and the policyholder has no more financial obligation.
Why is the Free Look Period of Life Insurance Necessary?
If you are a consumer of insurance product, there is a good chance that you do not have a complete understand of the insurance policies that you purchase. Insurance policies are binding contracts between the policyholder and the insurance company. Most people do not hire an attorney to read over the insurance contract that they are about to buy, so there is a good chance that someone may purchase a life insurance policy and pay their first premium only to realize later that they do not want the policy.
This could happen for a variety of reasons. A policyholder might not have read the contract closely enough and missed a stipulation that they could not live with. Or perhaps they reassessed their financial situation and realized they bought too much insurance. While the reason for purchasing life insurance is to protect the financial security of beneficiaries, the policyholder is the one that pays the premiums while still living. If someone pays too much insurance, he or she may end up paying a premium they cannot afford.
This is why the free look period of a life insurance contract is so important. No matter the reasoning, if the purchaser has buyer's remorse within the first 10-30 days, depending on the contract, the policy is voided and all of the premiums are returned.
Beware of Unscrupulous Life Insurance Sales Agents
Though most insurance agents are honest and good at what they do, like any occupation there are still shady ones that are looking to make a sale at any cost. One of the ways they do this is not to disclose all aspects of a life insurance contract.
These deceitful agents are another reason that the free look period in life insurance policies exists. Imagine if your parents or grandparents were recommended a life insurance plan and after paying the premium, asked you to look it over. When you review the contract you find that there were all sorts of stipulations that you knew your parents or grandparents could not live with. What if they were talked into buying twice as much insurance than they needed, especially when they would have trouble paying the required premium? You would hope that they could back out of the agreement. They can do just that with the free look period of life insurance policies.
Of course, this can be avoided by making sure you use a life insurance sales agent that you trust. Try to get recommendations from friends or family members of agents that they have used before and are honest. The free look period of life insurance policies hopefully will not have to be taken advantage of due to a bad sales agent.
The Free Look Period of Life Insurance Policies Saves Money and Frustration
It is extremely important to understand all of the provisions of a life insurance policy. For that matter, it is important to have a basic understanding of the provisions of all insurance policies and contracts. Life insurance policies have a lot of different provisions with concepts that can be difficult to grasp. In addition, the premium due for the insurance policy will vary based on the policy's face amount, length, and other riders that are attached. If a purchaser is not careful about what type of plan they buy, they might be surprised at how much the policy costs. Fortunately, if they wake up the next day, or the next week or two, and decide they do not want the policy, the free look period will save them the frustration of paying premiums for an unwanted policy.
Despite the free look period, a life insurance policy can be cancelled at any time. All you have to do is simply stop paying premiums. Eventually, once the grace period expires, the insurance company will cancel the policy. What the free look period does, though, is provide a way to cancel an insurance policy without losing money. After the free look period, a policyholder cannot have the premiums paid returned. If a cancellation occurs during the free look period, the initial premium is returned.
The insurance industry is highly regulated for good reason. One of the good reasons is the protection that the free look period of insurance policies provides by giving purchaser confidence that they will be able to cancel the policy if they decide soon after the effective date that they are the new owner of a life insurance policy they do not want.