Union finance minister Nirmala Sitharaman on Monday said that the government has asked insurance companies to increase the free-look period to one year from the present one month.
Separately, the government is planning to increase the deposit insurance above ₹5 lakh. This comes amid the Reserve Bank of India (RBI) superseding the board of New India Co-operative Bank due to “certain material concerns emanating from poor governance standards observed in the bank’’.
The free-look period, which applies to both life and health insurance policies, allows the policyholders to review the policy terms and conditions.
If a policy holder is not satisfied with the terms and conditions during this period, he or she can surrender the policy and get the money back. This was raised from 15 days to one month in March last year by the Insurance Regulatory and Development Authority of India (IRDAI).
“Every policyholder of life and new individual health insurance policies, except for those policies with tenure of less than a year, shall be provided a free look period of 30 days beginning from the date of receipt of the policy document, whether received electronically or otherwise, to review the terms and conditions of such a policy,’’ it had said in a notification.
The Centre now wants the insurers to increase this to one year. It is not clear whether the IRDAI will hold consultations with the insurance companies before issuing a circular.
Speaking at a post budget interaction here, Sitharaman said that the Centre has asked insurance companies to extend the free-look period to one year from one month.
“Now we have introduced a look-out policy of one month, we encourage our insurance companies to extend this look-out policy to one year. Including the private sector, they are doing that. If somebody wants to surrender the policy, surrender you get full amount. There are no questions asked,’’ M. Nagaraju, secretary, department of financial services (DFS) added.
Sitharaman also disclosed that the government is looking at more foreign direct investment (FDI) for the insurance sector while it will ensure that the premiums paid by individuals remain within India.
In 2025-26 Union Budget, Sitharaman had raised the foreign direct investment (FDI) cap on insurance to 100 per cent from 74 per cent.
Deposit insurance
On deposit insurance, Nagaraju said that the ceiling could be raised from the current ₹5 lakh.
“As and when the government approves, we will notify it,” he told reporters at a press conference. He declined to comment on the crisis at the New India Co-operative Bank pointing out that the RBI is handling the matter.
It was in February 2020 that the Deposit Insurance and Credit Guarantee Corporation, a wholly owned subsidiary of the RBI, had raised the limit of insurance cover for depositors in insured banks from ₹1 lakh to ₹5 lakh per depositor after the PMC Bank scam.
The DICGC had subsequently said that the coverage increase is applicable to all insured banks who would be placed under ‘liquidation/amalgamation/merger’ with effect from February 4, 2020.
Economic affairs secretary Ajay Seth said that the co-operative banking sector is well regulated under the RBI and that the overall health of the sector is strong. He added that a crisis at one entity should not lead anybody to cast doubts on the overall sector.He further pointed out that the RBI will take actions against errant entities.
Close to 90 per cent of New India Co-Operative Bank’s 1.3 lakh depositors will reportedly have their entire amount covered under the DICGC. Sitharaman said India is delivering good returns to investors who are booking profits.
