'Free-look' laws provide escape from new policies
By Prakash Gandhi • Bankrate.com

If you develop a common case of buyer's remorse after signing up for a new life insurance policy, you've got an easy way out. Most states allow you a "free-look" period of usually 10 days in which you can cancel the policy and get a full refund. The goal is to give consumers one more chance to think it over and back out if they choose to.

"It's 100 percent necessary because it really helps the consumer," says Nicole Farquharson with Allstate Insurance Company in Orlando, Fla. "The numbers can be very different when you get the actual policy back."

To get more information about "free-look" laws in your state, contact your state insurance commissioner.

Farquharson suggests that during the "free-look" period, consumers take the policy to a law office and get an attorney to review it. "Some lawyers offer free consultations," she said. "You need to take advantage of this provision. The important thing is to get a second opinion."

Tom Riggs, a Winter Park, Fla., life insurance agent for 24 years, supports the consumer's right to change his or her mind. "It gives them a chance to get their money back if they end up with a policy that's different from what they thought they were getting," says Riggs.

The 10-day period generally begins once you have received a full policy back from the insurer.

He says there have been occasions when his clients have had second thoughts. But he says he tries to prevent that from happening. "I try to draw up a policy that will suit the customer's needs so that they don't change their minds," he says. "I want them to be happy with their coverage. It costs me a lot of money to meet with the client, have the blood work done, and have the underwriting done. I don't want to waste that money."

Know the parameters of the free-look period
"Before you put down any money, you should ask the agent what the 'free-look' provision is and check with the state insurance department on whether such a provision exists," says Jeanne Salvatore, vice president for consumer affairs for the Insurance Information Institute.

Consumers should use the time to review the policy, ask their insurance agent any additional questions and make a final decision as to whether the policy they selected is right for them, says the Institute.

The provision is especially important for those who decide on a whole life policy. "With term insurance, it doesn't mean much to have free-look because you can back out at any time without a penalty," says Graeme Wright, a financial planning associate with AXA Advisors in Orlando, Fla. "But with whole life, the refund could run into hundreds of dollars."

The free-look policy varies from state to state. Florida law gives consumers 10 days to decide if they still want the policy. "The law is designed with the consumer in mind," says Guy Wren, owner of Guy Wren Insurance in Orlando. "A lot of pressure sometimes goes into selling life insurance."

Some agents prey on people.

"You might buy an insurance policy today and wake up in the morning and say 'I don't want it, I can't afford it, I don't know why I signed the contract.'"

In Oregon, state and federal law requires a free-look period of 30 calendar days after enrollment for long-term care insurance. But life, health and disability policies may come with a free-look period of 10 to 20 days.

In Oregon, to receive your full premium refund you have to write a letter to the insurance company stating that you are canceling your policy within the free-look period and that you want a full refund. State law says the company must send you a refund within a reasonable amount of time -- usually three to four weeks.

New York State requires a minimum free-look period of 10 days and up to 30 days for any policy offered through the mail.

Experts say the best way to find out whether a policy has a free-look period is to ask your agent to show you the free-look clause in the policy itself. Be sure to read your new policy carefully and ask the agent or company for a full explanation of anything you don't understand.

-- Posted: July 28, 2004