Definition and Example of a Free Look Period
The free look period for an annuity is a period after the purchase in which you can cancel it without facing any penalties. Free look periods usually last at least 10 days after purchase, depending on state law. The free look provision is designed to give prospective annuity customers a way to protect themselves from predatory sales practices. In the past, agents were paid commissions for selling annuities. That led them to adopt sales practices that were not in the best interests of their clients. States began regulating annuity sales in 2003, and regulations have been evolving. Nearly half of states have implemented or plan to implement the National Association of Insurance Commissioners’ Best Interest Rule, which requires agents to act in their clients’ best interests.
How the Free Look Period Works
The free look period starts when the annuity policy is delivered to you. Some carriers require you to sign an actual delivery receipt, but the clock starts as soon as you get the policy. Days counted are calendar days—not business days—so Saturday and Sunday are included. When the policy is delivered, it’s best to call the carrier to verify how the annuity works and to confirm any promises made during the sales process. Don’t call the sales agent; call the annuity company directly. The company’s toll-free number will be on the policy, so if you find out that the guarantees don’t match the sales pitch, you can enact the free look policy right on that call. The best part about the free look provision is that you do not have to explain why you want a full refund. You never have to speak with the sales agent. There might be a form to sign (depending on the carrier), but the customer service people at the carrier may not try to talk you out of it. As long as you follow the time-frame rules, you will get your money back. The annuity-free look provision is the consumer’s friend and can bring you peace of mind. It is possible to be up-sold into an annuity you don’t need. Think of it as your “get out of an annuity-free” card. It gives you time to continue shopping or have a lawyer or financial adviser review your contract. The free look period follows the state guidelines outlined in the following table. An annuity is a significant financial commitment. It is an excellent retirement solution for some people; for others, it might not be the best solution—the free look period is your state government’s way of giving you time to think about it and ensuring that you’re not being taken advantage of by commission-driven sales tactics.
