Policy Cancellation: Steps, Refunds & Penalties (2025 Guide)
🔍 Why People Cancel Insurance Policies
- Sold or scrapped the insured vehicle
- Found a better plan or insurer
- Dissatisfied with coverage or service
- No longer need the policy
- Financial reasons
- Policy was purchased by mistake
🧾 Steps to Cancel an Insurance Policy
✅ 1. Within Free-Look Period (Health/Life Insurance Only)
- Free-look period: 15 to 30 days (depending on mode of purchase)
- No penalty for cancellation during this period
Steps:
- Contact your insurer in writing (email or form).
- Submit:
- Original policy document
- ID proof
- Cancellation request letter
- Insurer processes refund after deducting:
- Medical exam cost (if applicable)
- Stamp duty charges
- Pro-rata risk premium
✅ Full refund minus minor charges
✅ 2. After Free-Look Period (Mid-Term Cancellation)
For Motor Insurance:
- Apply in writing with:
- Request letter
- Copy of RC (if sold)
- New insurer’s policy (if switching)
- Proof of vehicle sale/deregistration (if applicable)
- Submit the original policy or soft copy.
- Insurer issues refund after deducting used premium.
For Health/Life Insurance:
- Apply in writing with supporting documents.
- Some policies may not allow mid-term cancellation, especially if benefits have been claimed.
- Refund is usually on a pro-rata basis, minus charges.
💸 Refund Rules (Motor/Health Insurance)
| Time Elapsed | % of Premium Refundable (approximate) |
|---|---|
| Up to 1 month | 75–90% |
| 1–3 months | 50–75% |
| 3–6 months | 30–50% |
| 6–9 months | 10–30% |
| After 9 months | ❌ No refund typically |
Note: Subject to insurer’s terms. GST and stamp duty are non-refundable.
❌ Cancellation Due to Claim
- If a claim has been made, no refund is provided (motor or health).
- The policy can be cancelled, but with zero refund in most cases.
⚠️ Penalties or Deductions
| Deduction Type | When It Applies |
|---|---|
| Pro-rata premium | For the time you were covered |
| Stamp duty | If policy was physically issued |
| Medical exam charges | For life/health policies (if done before issue) |
| Service charges or admin fees | As per insurer terms (usually nominal) |
| GST | Always non-refundable |
🏦 Refund Timelines
| Insurer Type | Typical Refund Time |
|---|---|
| Private Insurers | 7–14 business days |
| PSU Insurers | 10–21 business days |
Trackable via email or online dashboard.
📘 Cancellation Scenarios
| Scenario | Refund Possible? | Conditions |
|---|---|---|
| Cancel within free-look period | ✅ Yes | Full refund minus exam & admin costs |
| Cancel after 3 months (no claim) | ✅ Partial | Pro-rata refund, minus charges |
| Cancel after a claim is raised | ❌ No | Most insurers don’t offer refunds post-claim |
| Vehicle sold (with proof) | ✅ Yes | RC transfer or sale document required |
| Switching insurer mid-policy | ✅ Yes | Need to provide new insurer details |
🧠 Tips Before You Cancel
- Always check terms in your policy document.
- Compare surrender value if it’s a traditional life policy.
- Submit a written cancellation request for proper documentation.
- If switching insurers, avoid a coverage gap (ensure new policy starts same day).
- Download and keep the cancellation confirmation & refund receipt.
🏁 Final Thought
Cancelling your insurance is easy, but it’s important to understand what you may lose in terms of refund or benefits. Always cancel only after the new policy starts (if replacing), and check deduction clauses.
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