What is the ‘free look-in period’ or the ‘cooling-off period’ In Life Insurance?

What is the ‘free look-in period’ or the ‘cooling-off period’?

The issuing of the FPR signifies the conclusion of the contract and is binding on both the parties. However, IRDA regulations provide the proposer with the option to withdraw from the contract within a period of 15 days from the date of receipt of the policy document if they disagree with the terms and conditions of the policy. This period is known as the ‘free look-in period’ or ’cooling-off period’. If the proposer withdraws from the contract, then the insurance company will have to return the premium paid minus some deductions, such as the cost of covering the risk for the short period during which cover was provided, medical examination expenses and stamp duty.

Policy document

Shortly after Nitish Sharma receives the first premium receipt, he receives a copy of the policy document. What can Nitish expect from this document? What will it look like?

The policy document is the most important document associated with insurance. It is the evidence of the contract between the insured and the insurance company. It is not the contract itself: if the policy document is lost by the policyholder, it does not affect the insurance contract. The insurance company will simply issue a duplicate policy without making any changes to the contract. The policy document has to be signed by a competent authority and should be stamped according to the Indian Stamp Act.

A standard policy has the following sections:

The heading of the policy document contains the name and address of the company and its logo.

The preamble of the policy states that the proposal and declaration signed by the proposer form the basis of the contract.

The operative clause lays down the mutual obligations of the parties regarding:

• the payment of premiums by the insured; and
• the payment of the sum insured by the insurance company on the happening of the insured event, subject to the production of age proof and title by the claimant.

The proviso of the policy states the general provisions relating to guaranteed surrender value, nomination, assignment and loans on security of the policy etc.

The schedule gives all the essential particulars of the policy. Insurers also include a printed copy of the proposal form completed by the policyholder in the policy document to remove any ambiguity.

The attestation confirms that the insurers have authenticated the policy document by signature. The attestation can be done by authorised officials of the insurance company.

The terms and conditions will refer to the:

• days of grace for payment of premium;
• consequences of failing to pay the premium; and
• availability of loans.

It is also in this section that information will be given on how to assign the policy, how to surrender the policy or make it paid up (we will look at what these mean in section H) and how to make a claim. This section will also detail any exclusion(s) under the policy.

An exclusion is a statement that a certain risk is not covered by the policy. If the loss is caused by the risk that is excluded from cover, the sum insured will not be paid by the insurance company. An exclusion may be one that is common to all life policies (even those issued by another insurance company). An example of this would be that the policy will not pay out if the life insured commits suicide within one year of purchasing the insurance policy. Other exclusions may be included in the policy by the underwriter because of the risk presented by that particular individual. For example, the underwriter may decide to exclude death resulting from adventure activities like trekking, water rafting or various other water sports etc. which are considered risky or dangerous by the insurer. We will look at why an underwriter might do this in chapter 4, when we consider how an underwriter will sometimes accept a poor risk on modified terms.

In order to make certain changes in the terms and conditions of the original life insurance policy, endorsements can be made on a blank sheet of paper and attached to the original policy document. A life insurance policy can be easily amended by using an endorsement. The endorsement is then part of the policy.

Policy information statement

The IRDA requires that the policy information statement should be issued with every policy. This policy information statement should include the following:

• the facility available for method and frequency of premium payment;
• the person or office to be contacted for any enquiry or service relating to the policy;
• the importance of telling the insurance company of any change of address of the policyholder and nominee;
• what to do in the case of a grievance or complaint; and
• information on the location of the Insurance Ombudsman.

Once the proposal has been accepted by the insurance company and the first premium receipt and policy has been issued to the proposer, the proposer is covered by the insurance. From this point we no longer refer to them as proposers – they are now policyholders, i.e. people who hold insurance policies.

Anand Khemka
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