What is Free Look Period
A free look period is a period of time in which a new life insurance policy owner can terminate the policy without penalties, such as surrender charges. A free look period often lasts 10 or more days (depending on the insurer), allowing the contract holder to decide whether or not to keep it; if he or she is not satisfied and wishes to cancel, the policy purchaser can receive a full refund. Free look periods are most commonly associated with life insurance policies. In fact, all 50 states and the District of Columbia have laws requiring them for various types of life insurance policies.
BREAKING DOWN Free Look Period
During the free look period, the purchaser can continue to ask the insurer questions regarding the contract in order to better understand the policy. If refunded, the amount given back may equate to the value of the account at cancellation or the amount of payments, depending on the state in which the policy was written.
Intent of Free Look Period
The free look period is for the benefit of a policyholder. It provides additional time to review a new life insurance policy in depth, and have your agent, lawyer or company representative review your policy's terms and conditions with you. Once a policyholder is in receipt of a new life insurance policy, the free look period begins. If you decide to cancel the policy, you must notify your agent or company representative with your request(s).
History of Free Look Period
The U.S. life insurance industry was once very poorly regulated. Back in the 1930s and 1940s, the industry tended to attract unscrupulous characters. As a result, the whole life insurance industry got a bad reputation because of high-pressure tactics, badgering of customers and many disreputable, insolvent or even nonexistent insurance companies that never paid claims.
Luckily, the industry has vastly improve since those days. The negative reputation of the past forced the industry to reform its practices. State governments also got heavily involved with complaints about abusive sales strategies. They also responded with legislation, and that's how the free look period came into existence.
Free Look Period in Action
Let's say Robert, who lives in Texas, buys a variable life insurance policy from his local insurance agent. After signing up for the policy, Robert receives his executed policy documents in the mail two days later. Robert's free look period begins when he receives those documents, and in Texas, he has 10 days to review the policy and decide whether he wants to keep it.
Two days later, Robert brings his policy to his lawyer to review, and his lawyer advises him to cancel the policy and go with another insurer. Robert takes his lawyer's advice and advises his insurer the next day that he wants to cancel the policy. The insurer is obliged under law to comply with his wishes, and the insurer refunds Robert's initial premium payment.