What’s a Free Look Period for a Life Insurance Policy?

Updated

Have you ever experienced “buyer’s remorse” and wished you could return the item you just bought, but later remembered the large sign near the cash register that read, “No Refunds or Exchanges?” Unfortunately, few companies have liberal free look policies anymore; the days of Nordstrom’s “Return with no questions asked” are behind us.

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Fortunately, the insurance commissioner for the state you live in requires life insurance companies that sell policies in your state to offer a “free look period” for people who buy a policy from them. 

For many of us, anything with the word “free” in it arouses our suspicion. This article will examine if your new life insurance policy truly comes with a “free” look.

Definition of a Free Look Period

The free look period can be defined as “the period of time the life insurance company must give you, during which you can return the policy without any financial penalties.”

Life insurance companies typically give 10 to 30 days, depending on the company, to cancel your new policy and get a full refund. You’re not going to be hit with any cancellation penalties, surrender charges, or return fees. And you don’t have to provide the insurer or agent a reason why you wish to return your policy.

If you return your policy during the free look period, you’re entitled to a full refund of any premiums you paid. After the free look period has ended, you can still return your policy and receive a partial refund for the period of time that you had paid up to.

Example: Gina applies for a new life insurance policy with a 10-day free look period, and it’s delivered to her on May 1st. On the last day of the free look period, May 10th, Gina notifies the life insurance company that she wishes to cancel the policy and receive a full refund. 

By law, the insurer must comply with her request and refund the full first month’s premium Gina had submitted with her application. If she waited another week, she would only receive a partial refund of the premium she submitted.

What’s the Purpose of a Free Look Period for Life Insurance?

The primary purpose of the free look period is to protect you as a consumer. Even though they’re in the minority, some life insurance agents and companies rush people into buying policies and don’t fully explain the terms and conditions of the policy they’re applying for. 

Before the free look period was mandated by states, once a policy was issued, the buyer couldn’t receive a refund of any money they had submitted with their application. If they changed their minds and didn’t want to accept the policy, they could cancel their coverage, but no premiums paid would be refunded.

Another purpose of the free look period is to give you time to read your policy carefully from cover to cover. This allows you to understand your coverage better and check that everything the agent told you at the time of sale agrees with what the policy states.

The free look period also gives you time to have advisors review the policy for you. Many times, an attorney or financial planner has found something unacceptable in the language of the policy. 

For example, your attorney may review your policy and want the beneficiary to be changed for tax purposes, or your financial advisor may see that the amount of insurance is too much or not enough.

Do All Life Insurance Policies Come With a Free Look Period?

Not all insurance policies come with a free look period. The free look period doesn’t apply to group life insurance policies, credit life insurance, or policy conversions from term life insurance to permanent life insurance. 

Many other types of individual insurance don’t come with a free look period. For example, long-term care insurance doesn’t come with a free look period, regardless of if the coverage was for you or you bought long-term care for parents.

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How to Make the Most of Your Free Look Period

There are three things you should do during your free look period to ensure that the policy you were issued is what you want:

Read the policy yourself. Reading the policy will not only reveal anything not disclosed at the time of sale; it can confirm that what was stated by the agent is true and accurate. Be sure to read the application you completed and has been made part of your policy – confirm that no changes have been made to the information you submitted.

Talk with the agent who sold you the policy. After reading the policy yourself, make notes of any questions or concerns you have and have them addressed. If you’re not comfortable speaking with the agent that sold you the policy, call the policyholder department at the insurance company and have them clarify things for you. You can find their contact information either on the policy or online.

Have your beneficiary look over the policy with you. By doing this, they’ll know exactly how much coverage there is and how to file a claim, if necessary. Also, be sure to let them know where you keep the actual policy. They’ll need it to have the policy number and insurance company name when a death claim is filed.

No, it’s not the most exciting document you’ll ever read, but it’s extremely important that you do. That policy will provide a hefty sum of money to a loved one or business partner someday, and you don’t want there to be any surprises when they file a claim.

How to Cancel a Life Insurance Policy During a Free Look Period

You can cancel your life insurance coverage at any time during the free look period and for any reason. Your request should be made over the phone, by email, or in writing to your agent or the company that issued the policy.

Remember, once your free look period has ended, you won’t be receiving a refund for premiums paid if you cancel the policy. However, if you specify in writing the date you want cancellation to become effective, the life insurance company may refund unused premiums to you.

Why Do People Return Life Insurance Policies During the Free Look Period?

There are a few reasons people contact the agent or life insurance company during the free look period and tell them that they don’t want the policy issued to them. 

They were victims of the “hard sell.” Experienced life insurance agents are well-trained on methods to have people apply for life insurance coverage the first time they talk. 

For example, they may ask you uncomfortable questions that make you feel like you’re being backed into a corner, such as:

“What would happen to your family if you die instantly in a car crash coming home from work tomorrow?” or “Don’t you love your family?” 

The hard sell often happens because some life insurance agents are taught to be persistent and keep asking prospects to buy until they’re told to leave. Some sales trainers tell agents to pretend they didn’t hear the word “no” or not to give up until the prospect has said no six or seven times.

They have buyer’s remorse. What seemed like a good idea yesterday doesn’t always seem that good today. Eager buyers can sometimes buy too much life insurance or the wrong type of life insurance and later discover that they wouldn’t be able to consistently pay the premiums every month.

For example, instead of buying term life insurance, which they could have easily afforded, they purchased whole life insurance instead. Whole life is much more expensive than term life because it not only has a death benefit component, but part of that higher premium goes into a “cash value” component of the policy, which is comparable to a savings account. 

They already have group life insurance where they work. The buyer neglected to take into account that they already had life insurance through their employer, even though if they leave the employer, they’ll be leaving their life insurance behind, too. 

They couldn’t say no. It’s difficult for some people to say no to a salesperson, even if they’re not experiencing the hard sell. They are often conflict avoiders who wait to say no after the agent leaves with a signed application or after receiving the policy and are in the free look period.

Both spouses weren’t present. Agents are taught never to make a presentation to a married couple when one spouse isn’t present. The reason: a high percentage of those policies are canceled either before the life insurance application is even submitted or during the free look period. 

Final Word

Purchasing a life insurance policy is very often a long-term commitment you’re making. It’s also a very important purchase because it provides financial protection for people you care about deeply. 

Use the free look period and make sure the policy you bought is perfect for your situation. If you need to, return it during the free look period and buy a different policy that better meets your needs. 

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