July 15, 2020
Have you ever wished you could take your life insurance for a test drive? Well you can, and it’s mandated by law.
Once you’ve committed to a life insurance company, you’ll be paying your premiums faithfully for a number of years so how can you be sure that you make the right choice among term life, whole life, universal life and all the coverage terms, riders, and combinations? It may be difficult to understand everything about your life insurance policy in the moment when you’re purchasing insurance or maybe you just have second thoughts afterwards.
Many people don’t know this, but you can take your life insurance for a test drive, risk-free!
Come along with us as we learn all about:
Let’s get started!
When you purchase a life insurance policy, your free look period begins when you receive your documents. Keep in mind that this can be a couple of days after you actually purchase the policy if it’s being mailed, or it could be the time it’s sent if it’s emailed. During this time, you can carefully look over your contract and make a more informed decision about your policy.
Whether you purchase your policy in person or online, you may not understand everything about it until after you think it over for a few days. Or you may feel buyer’s remorse when you realize that you purchased a policy that doesn’t quite meet your needs.
The free look period, or your right of rescission gives you a chance to gracefully back out without losing any money.
The free look period for life insurance is similar to an “x days money-back guarantee” you might get when you buy a washing machine or microwave. Or a free cancellation period when you sign up for a new service.
You get a set number of days to “test drive”your life insurance policy and make an informed decision about whether it will really meet your needs. A minimum number of days is mandated by law in many countries, although an individual company can choose to offer a longer free look period.
There is a lot of information included in a life insurance policy. This makes them long and rather confusing. Not everyone will understand everything the first time they read it. You may wish to ask a trusted friend or family member for help if you’re having a hard time wrapping your head around the information. If you still don’t feel confident in your choice, you might even take it to your lawyer to have it looked over.
On top of that, the full contract documents are usually delivered after you have paid for the policy. The online services, agent, or broker will explain the policy to you and will be happy to answer your questions when purchasing. However, you won’t have it all laid out in black and white until you receive your policy documents after payment.
That doesn’t seem very fair, does it? Thus, the purpose of the free look, or cooling off period is to give you time to carefully peruse the paperwork and fully understand if the policy is right for you.
Why do insurance companies work this way? Why not just give you all the pertinent information upfront?
Life insurance policies cover a wide range of circumstances and eventualities. The online services, agents, and brokers will do their best to give you a complete picture of the policy and everything it covers. However, there is a lot to cover and it’s easy to miss something that could be a dealbreaker for you.
Beyond that, an unscrupulous agent can easily “overlook” or “forget to mention” a vital piece of information during your sales session. In the past, companies have taken payment for life insurance policies, but deliver a contract with a list of exclusions that make you ineligible for death benefits in a number of common situations.
To keep this from happening, state regulators and other government entities began imposing free look laws. Now consumers have plenty of time to review their entire whole life or universal life policy and cancel with no penalties or fees. They are also entitled to a refund of any monies they’ve already paid.
So we’ve established that you can cancel during the free look period and get all your money back. What about the insurance company? Are your benefits active? Are they obligated to pay the death benefit if the unthinkable happens during this period?
Yes. They already had a chance to look over your history when they did their homework to approve you for the policy. Your policy becomes active from day one and if you die during this period your beneficiaries are eligible to receive the full benefits offered by the policy.
Cancelling your policy is fairly straightforward. Simply contact the company before the free look period expires and let them know that you’d like to return your policy.
Don’t worry, life insurance companies don’t generally get out their boxing gloves to fight you over this. They may question you on why you want to return your policy to see if they can meet your needs in another way — but that’s about how far it will go.
If they still aren’t able to offer a life insurance policy that satisfies you, they will refund your policy.
Once you’re on the record about requesting your refund, you’ll need to fill out the appropriate paperwork. From there, you should receive a refund within a few days, although each company will have its own policy on how long it takes.
In Canada, every insurance company that is a member of the Canadian Life and Health Insurance Association (CLHIA) is supposed to offer a 10-day free look period with their policies.
That being said, it’s always a good idea as a consumer to ensure that the company offers this free look period before purchasing any products. Keep in mind that the agent is supposed to inform you of your right of rescission when you sit down to talk with them.
Keep in mind that the free look policy is most widespread for life insurance. Other types of insurance like accident, travel, or sickness insurance policies of less than 6 months don’t typically come with a free look. This is because life insurance is more expensive, typically has along-term commitment, and may come with heavy surrender fees.
Keep in mind that even though the free look gives you a chance to thoroughly look over your policy after purchase, you should still do your research beforehand. Though companies will easily hand back your money it’s still a bit of a hassle just having to fill out the paperwork, which may or may not be fully online.
Not to mention this process costs the insurance company money. Giving back a lot of policies raises their operating costs, which contributes to rising insurance costs as they seek to cover their expenses.
We hope this information has helped take the uncertainty out of applying for a life insurance policy. We understand that choosing the right policy can be intimidating, but it is important insurance, especially during this time of COVID. The coronavirus has all made us a little more aware of our mortality, but keep in mind that it generally hasn’t affected life insurance rates or eligibility, except perhaps for the very old.
Now that you know you can get your money back if you aren’t happy, maybe it will little less scary.
Please note that this article does cover a lot of policies across a number of different geographies and each country may very well have nuances, limits, or exceptions to this that could change overtime.
