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Insurance buyers, often, realise too late the policy that they have bought is either too expensive or does not give them adequate cover. And while the Insurance Regulatory and Development Authority (Irda) has mandated a 15-day 'free-look period', many customers find it quite harrowing to go through the process.
But as the saying goes, 'nothing comes for free'. So, if you want to give up the policy within the first 15 days, you will have to forego the underwriting costs that includes, proportionate risk premium for the period on cover, expenses incurred for medical examination and stamp duty charges. If it is a unit-linked policy, the customer will have to bear additional losses in the value of the units during the period.
Worse still, many times policyholders receive the policy after the mandated 15 days, which renders them helpless. Or, the insurance company seeks concrete reasons for rejection of policies.
"Often requests for cancelling are associated with pricing. Sometimes an agent may sell a particular policy to a customer without explaining all the details. And if another agent promises a similar product at a lower premium, the customer may ask for the policy to be cancelled. That is why insurance companies make it slightly difficult for customers to cancel or return the policy," says Ashvin Parekh, partner-national leader, global financial services, Ernst & Young.
While some insurance companies have worked out mechanisms where they call the customer to verify if they have understood the details, the mechanism is still not foolproof. Says Says Sanjay Tiwari, vice-president, products, HDFC Life, "Requests for cancelling are seen when there is a drive by a company to sell a particular policy, or during tax season when companies push sales aggressively.
Financial planner Gaurav Mashruwala feels insurance buyers should read the entire policy document when they receive it. "Use the 15-day period to read the entire document and chew the agent's brains, if required. Whatever you do not understand, get in writing from the agent," he says.
Of course, it is not an easy task to read the policy document. Often, it is 10-15 pages or longer. The details are in small font size, making it very difficult for the reader.
Under such circumstances, many prefer to keep on servicing (paying the premiums) it for some time and then let it lapse. As Irda 2011-12 data (the latest available) shows, 16 million traditional policies worth Rs 1.9 lakh crore (sum assured) were not renewed. In 2010-11, 14 million traditional policies lapsed. And the data is only for traditional policies and does not include unit-linked insurance plans. For some private sector companies, the lapsed policies were 30-50 per cent of the total number of policies.
This number itself is quite telling. It implies that a huge number of people are buying policies and just not renewing them. Better utilisation of the 'free-look period' and good servicing will help matters.
