Life and Health Insurance companies have expressed concern over the government’s proposal that has asked to increase the free-look period (FLP) for private insurance companies from 30 days to 1 year. Companies say that if this proposal applies, it can cause financial loss and also use these policies incorrectly. Talking about now, a government life insurance company like LIC gives 15 days free and 30 days on policy purchased on the policy purchased offline.
What is Free-Look Period?
FLP is a grace period, during which policyholders can be canceled if the insurance policy is not liked. According to the scheduled rules of the Insurance Regulatory and Development Authority of India (IRDAI), the policyholders get back the remaining money by reducing the expenses related to stamp duty and medical tests on cancellation of the policy. With this, if the policyholders feel that they have been sold in the wrong way, then they can cancel their policy without surrender fee.
Why the industry has trouble with the government’s proposal?
The government had recently proposed that the free-look period for private insurance companies should be increased from 30 days to one year, so that the policies could be banned wrongly. Hanut Mehta, founder and CEO of Beamapay Finshore, says that if this proposal is implemented, it may be right for life insurance to increase this period to one year but it will not be right for health insurance because it is renewed every year. .
In insurance policies, agents get a commission of up to 40 percent. Apart from this, there are marketing and administrative expenses. Insurance companies say that if the free look of up to one year is period then it will be difficult to cover these expenses. Apart from this, a negative impact on the personal rating can also have, which tracks how percent policyholders maintain their policy over time. Another problem is that at the increase in this period, agents can encourage policyholders to take a new policy by canceling the old policy.
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