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...it depends on the state.

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 weakly regulated. Back in the 1930s and 1940s, this 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 1930s and 1940s 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.

  1. Surrender Fee

    A charge levied against an investor for the early withdrawal ...
  2. Surrender Charge

    A fee levied on a life insurance policyholder upon cancellation ...
  3. Traditional Whole Life Policy

    A type of life insurance contract that provides for insurance ...
  4. Values

    The worth of a nonforfeiture clause that specifies that an insured ...
  5. Assignable Contract

    A futures contract with a provision permitting the contract holder ...
  6. Surrender Period

    The amount of time an investor must wait until he or she can ...
Related Articles
  1. Financial Advisor

    Cash Value vs. Surrender Value: What Is the Difference?

    How much you actually receive from the cash value of your life insurance policy is based on the surrender value, which can sometimes be much lower.
  2. Insurance

    Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own.
  3. Insurance

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
  4. Financial Advisor

    How to Avoid Overpriced Annuities

    The key to not paying excessive fees for annuities is understanding how they work. Here's what you need to know.
  5. Managing Wealth

    An Introduction To Life Settlements

    A life settlement is the trading of a life insurance policy under specific circumstances. Learn what it's all about.
  6. Financial Advisor

    Advising FAs: Explaining Life Insurance to a Client

    Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death.
  7. Personal Finance

    Are 'Free' Tax Refund Loans Really Free?

    While tax refund loans are now completely free, getting one can cost you in tax prep and other fees.
  8. Insurance

    Explaining Insurance

    Insurance is a form of contract between an individual and an insurance company that spreads risk in exchange for premium payments.
Hot Definitions
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.
  2. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  3. Return On Equity - ROE

    The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability ...
  4. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  5. Whole Life Insurance Policy

    A life insurance contract with level premiums that has both an insurance and an investment component. The insurance component ...
  6. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
Trading Center