Understanding the Free Look Period for Life Insurance

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  • The free look period lets new policyholders cancel a policy with no penalty. Here’s everything you need to know about the free look period for life insurance.

Whether you’ve found a better policy, want to work with a different carrier or are just experiencing buyer’s remorse, you can reconsider your life insurance purchase after you’ve signed the paperwork thanks to the free look period. This provision essentially lets you take your policy for a trial run, during which you can cancel it with no penalty. If you’ve recently purchased coverage or are planning on doing so, here’s what you need to know about the free look period for life insurance.

What Is the Free Look Period for Life Insurance?

The free look period is a designated period of time during which a new life insurance policyholder may cancel the policy without incurring surrender charges or other penalties. As long as the policy is cancelled within this timeframe, the purchaser receives a full refund of any premiums they’ve paid. This period of time, which is mandated by every state, is sometimes referred to as the free examination period.

How Does the Free Look Period Work?

Although a life insurance policy is a binding legal contract that assigns rights and responsibilities to both the policyholder and the carrier, the free look period provides a way out for purchasers who’ve changed their mind about the purchase. During this free examination period, life insurance policyholders have the opportunity to review the terms and conditions of their coverage to decide if it's the right plan for their needs.

At any point during this period, a policyholder may opt to cancel their life insurance plan without penalty. If they do so, the insurer must issue a full refund of any premiums paid. The request to cancel may be done by a telephone call to your insurance agent or directly to the insurance company. If your insurer needs the request in writing, they'll let you know at this time.

If you opt to continue your policy at the end of the free look period, there’s nothing else you need to do. Simply pay your premiums and your policy continues, uninterrupted, per your agreed-upon coverage terms.

How Long Is the Free Look Period?

This free examination period typically lasts for 10 to 30 days, depending on the individual carrier and the state of issue. The countdown for this trial term may begin on one of three days:

  • The effective date, which is the day the policy becomes active
  • The date of issue, which is when you receive the policy’s paperwork
  • The date the policy paperwork is sent via mail or email

Details of the free look period, including the timeframe for penalty-free account cancellation, are specified in the policy’s terms. Your insurance agent or a company representative can also advise you about the specifics of your policy’s free examination period.

Do All Insurers Offer Free Look Periods?

Although not every type of insurance policy comes with a free look period, all life insurance policies do. Free look periods for life insurance are currently required by the state insurance departments of all 50 states and the District of Columbia. Legislation varies from state to state, including guidelines for time limits on cancellation and the types of policies for which free look periods apply, so contact your state’s insurance department for information on local regulations.

Can I Cancel My Insurance and Get Money Back After the Free Look Period?

You can cancel your life insurance policy at any time. A request to terminate your coverage may be submitted over the phone, by email or in writing to your agent or the issuing company. Most term life policies can also be terminated by stopping premium payments and letting the policy lapse.

With most plans, once your free look period has ended, you probably won’t receive a refund for premiums you’ve already paid. However, if you specify, in writing, a date when cancellation is to be effective, the company may return unused premiums.

Policyholders who have coverage through whole life plans, which combine insurance with an investment component, may receive cash back upon cancellation. However, the amount you receive, which is considered the cash value of the policy, may be subject to taxes and fees.

If you’re thinking of cancelling a whole life policy, it’s important to submit a formal request for termination of coverage through your agent or a company representative. You can do so by asking to be paid the cash surrender value of the policy. If you opt to simply stop payments, the policy’s cash value will continue to fund premium payments until it runs out and you will receive no money back.

Do I Have to Pay a Fee to Cancel My Policy?

Cancellation fees may apply to certain types of policies. If you have a permanent life insurance policy, you’ll probably incur a penalty for cancelling. However, whether you’re assessed a fee may depend on several factors, including the type of coverage and how long you've had the policy.

Are There Alternatives to Cancelling Unwanted Life Insurance Coverage?

One alternative to cancelling unwanted life insurance coverage is to sell your policy to a third-party buyer. These parties typically purchase policies from older policyholders or those with serious health issues, offering a cash payout for the plan. They continue to pay premiums on the policy and become the new beneficiary, receiving the death benefit when you die.

If you’re thinking about selling your life insurance policy, there are several things you should consider:

  • Returns are often low when selling life insurance. The settlement you get may be only a fraction of your death benefit.
  • Brokers may charge hefty fees or commissions that result in even less money in your pocket.
  • The payment you receive may be taxable. Because it’s considered taxable income, it may affect your eligibility for Medicaid, Medicare and other government benefits.
  • Most buyers look for plans that give them the best odds of recouping their investment, so selling a policy can be difficult.

Reducing or cancelling your coverage may ultimately be a better option for most policyholders.

Where Can I Get Help?

Whether you’re ready to purchase a life insurance policy or you want to cancel a plan you already own, you may need help with the transaction. A reputable agent or broker can help you navigate the ins and outs of the free look period for life insurance and other complex topics. Most insurance companies also maintain a customer help line where trained representatives are available to answer questions and help consumers make informed decisions.