9 ways to use credit card properly!

Sneha Mishra, 30, was charged with high interest and late fees for not paying credit card bills on time. Worried about the high charges, she immediately called up the customer care executive, requesting to reverse the transaction. While addressing her issue, the executive also tried to sell her a life insurance policy.

Being a little distracted, Sneha agreed to buy the policy in exchange for a promise that her problem would be resolved soon.

“I bought an insurance policy on the spot without going through terms and conditions. Later I found out that it did not suit my requirements. Moreover, it was an annual policy, which means long-term financial commitment, for which I was not ready then,” she said.

Many like Sneha end up buying insurance policies on the insistence of bank officials on their visit to a bank branch or while talking to customer care executives. In a hurry to close the deal, many times consent is given without scanning through policy details. The surprise comes later when the individual goes through the fine print in the documents. For people like Sneha, the good news is that there is a clause in insurance policies that allows you to cancel the policy within the free-look period.

What is a free-look period?

After buying an insurance policy, the company gives you a time period of 15 days from receiving the policy documents to go through the terms and conditions of the policy. If you think the policy was mis-sold to you, there is a window of 15 days during which you can approach the insurer and get rid of the policy.

The timeframe to review the terms and conditions of the policy gets extended to 30 days in case of electronic policies and policies sourced through distance mode from the date of receipt of the policy documents. It is important to know that while calculating days, your insurer might consider calendar and not business days, which means Saturdays and Sundays can also get included while calculating the window. Hence, the sooner you do it the better it is.

Is full premium paid on the cancellation of the policy?

If you cancel the policy during the free-look period then the insurer deducts the following amount based on the expenses incurred while issuing the policy:

1. Expenses incurred on medical examination of the insured person and the stamp duty charges

2. A certain amount is deducted towards the proportionate risk premium for the period during which cover was active.

3. Where only a part of the insurance coverage got commenced, a proportionate amount gets deducted

4. In the case of a unit-linked policy, the insurer is also entitled to repurchase the unit at the price of the units as on the date of the return of the policy

Benefits of free-look period

Any hasty decision can put a dent in your financial goals, as insurance is a long term plan. Hence, the free-look period offers a backstop if you are mis-sold a policy so that your long-term plans remain intact. One of the best features of a free-look period is that no explanations are asked for cancelling the policy. The company generally does not try to influence your decision if you want to cancel the policy provided you have done the needful within the specified timeframe.

Having said that, as the full premium amount is not paid back to you, it is always advisable to go through policy details in advance so that you don’t have to go through the hassle of cancelling the policy later on.