Government Extends Free-Look Period for Insurance Policies to One Year

In a move aimed at enhancing consumer protection, the government has directed private insurance companies to increase the free-look period for policyholders from one month to a full year. M Nagaraju, Secretary of the Department of Financial Services (DFS), announced the decision during a post-Budget press conference in Mumbai on Monday.

The free-look period allows policyholders to cancel their insurance policies within a specific time frame without incurring surrender charges. Last year, the Insurance Regulatory and Development Authority of India (IRDAI) had already extended this period to 30 days from 15 days. Under the new directive, if a policyholder returns the policy within one year, the insurer will refund the first premium paid.

Additionally, the government has asked public-sector insurance companies to implement a ‘call-back’ system. This system will ensure that after an insurance product is sold, the customer will be contacted to confirm their satisfaction with the product. If the customer wishes to surrender the policy, they will have the option to do so. Private insurers have also been encouraged to adopt this measure to prevent mis-selling of policies.

These measures are part of the government’s ongoing efforts to reduce the mis-selling of insurance products in India. Nagaraju also highlighted that the number of complaints related to unfair business practices in the insurance sector had decreased. According to IRDAI’s annual report for FY24, the number of grievances against life insurers fell to 23,335, down from 26,107 in FY23. Furthermore, the share of such complaints in the total grievance count declined from 21% in FY23 to 19.3% in FY24.

As part of these reforms, the government has also mandated that only trained agents be allowed to sell insurance policies through banks and financial institutions, further addressing concerns over mis-selling.

Both Finance Minister Nirmala Sitharaman and IRDAI Chairman Debasish Panda had raised concerns about mis-selling, particularly through banks, during the SBI Economic Conclave in December 2024. They stressed the importance of restoring customer confidence and urged banks to focus on their core banking services.

Regarding the Insurance Amendment Bill, Nagaraju shared that internal consultations had been completed, and the bill would cover important aspects like investments and the repatriation of profits for foreign direct investment (FDI). The bill will also include provisions for a composite insurance licence. Finance Minister Sitharaman had announced in the Union Budget on February 1 that the FDI limit in the insurance sector would be raised to 100% from the current 74%.

Nagaraju noted that once the bill is approved, additional rules on investment and profit repatriation will be notified, completing the series of reforms aimed at improving insurance penetration in the country.