How to Cancel an Insurance Policy

Cancelling an insurance policy is sometimes the right decision — but it is often done impulsively and incorrectly, leaving people unprotected or forfeiting premiums they could have recovered. Here is how to approach it thoughtfully and execute it correctly.

When Cancellation Makes Sense

• You are cancelling a motor policy because you have sold the vehicle
• You have purchased a clearly superior replacement policy and both cannot run concurrently
• You are within the free-look period (15–30 days of receipt) and have found the product is not what you expected
• A policy is genuinely duplicating cover you already have elsewhere

Do not cancel a health or term policy without having a replacement in force first. The risk of being uninsured even for a day can be severe.

Step 1: Use the Free-Look Period If Available

IRDAI mandates a 15-day free-look period (30 days for policies purchased online or via distance marketing) during which you can return any new policy for a nearly full refund — the insurer deducts only a small amount for the medical examination (if any) and stamp duty. This is the cleanest way to exit a policy you regret buying.

Step 2: Understand the Cancellation Terms After the Free-Look Period

Beyond the free-look period, cancellation is possible but the refund is calculated on a short-rate basis — you get less than a proportionate refund. For example, cancelling a health policy at 6 months may return only 35–40% of the annual premium, not 50%. Check your policy document for the specific refund table.

Step 3: Ensure the Replacement Policy Is Active First

For health and life insurance, obtain and verify the new policy before cancelling the old one. Confirm the new policy number, sum insured, and start date. Only then initiate the cancellation of the old policy.

Step 4: Submit a Written Cancellation Request

Most insurers require a written or online cancellation request. Provide:

• Policy number
• Reason for cancellation
• Bank account details for premium refund
• Signature (scanned for online requests)

Requests submitted via the insurer''s portal or by registered post with acknowledgement create a paper trail.

Step 5: Follow Up on the Refund

The refund (if applicable) should reach your bank account within 7–15 working days. If it does not, follow up with the insurer''s customer care and the written reference number for your cancellation request. If the refund is disputed, you can escalate to the Grievance Officer.

Common Pitfalls to Avoid

• Simply stopping premium payments and assuming the policy is cancelled — it lapses, which has different legal and financial implications than a formal cancellation.
• Cancelling without reading the refund terms — the actual refund may be much less than you expect.
• Cancelling a group policy sourced through your employer — these are usually not within your individual control; confirm with HR before attempting.

Conclusion

Cancellation is a legitimate option when done for the right reasons and in the right order. If you are considering cancellation because your current plan is inadequate or overpriced, it is worth comparing alternatives first — a switch may serve you better than a cancellation. TruePolicy advisors can help you evaluate whether switching or cancelling is the better path for your specific situation.