What is an annuity free-look period?
Buying an annuity typically requires a major investment and a long-term commitment. As such, it’s not a transaction that should be entered into lightly.
Even after signing on the dotted line and handing over a check, many buyers have second thoughts. They may not have understood exactly what they were buying, or they may have received additional information that makes them second guess the decision.
Annuity contracts are difficult to cancel. Immediate annuities, once entered into, cannot be canceled. Deferred annuities that are surrendered are subject to a penalty based on a percentage of the account value when you cancel the contract.
The good news is that before you fully commit to a long-term annuity contract, you have a free-look period during which you can change your mind. As long as you cancel the contract during this period, you can receive a full refund without penalty and without any questions.
The amount of time you have to review your contract is based on your state and whether your contract is new or if it’s replacing an existing annuity. Every state provides a minimum of a 10-day free look period for new contracts. A few states offer longer periods, such as Florida and Texas (20 days) and California (30 days). Also, many states offer a 30-day free-look if the annuity you purchased replaced an existing contract.
You should know your state’s free-look provision when you buy your annuity. You can find that information at your state insurance department by either calling or looking on its website. State laws dictate a minimum period; some insurance companies may offer a longer period.
The free-look period begins the day you receive the contract. That means you get a few extra days in addition to the free-look period to reconsider your purchase because it takes several days for the insurance company to process the paperwork.
The agent who sold you the annuity may deliver the contract in person, or the insurance company may mail it to you. Some carriers require you to sign an actual delivery receipt, but it’s important to remember that the clock starts ticking when you get your hands on the actual policy.
It’s also important to realize that the period is measured in calendar days, not business days. That means weekends and holidays will count toward the free-look period.
If you had any reservations about your purchase, the free look period is a good time to do extra research, read the contract thoroughly and seek the advice of a trusted family member or friend. You can also call the insurance company’s customer service department and ask specific questions if you’re not sure of certain contract provisions.
If you decide you want a full refund, you do not have to provide a reason. You should call the insurance company instead of the agent, because the agent may try to persuade you to reconsider since he or she stands to lose the commission from the sale. The company may require you to fill out a form.
As a safeguard, you are encouraged to use certified mail to establish the date the contract was mailed back to the company.
So if you don’t feel 100 percent confident about the purchase you made, take advantage of your state’s and/or carrier’s free-look period to either feel right about it or to get out of it without penalty.