How to Cancel a Life Insurance Policy?

Your life goals and financial requirements may change over time. In such scenarios, you might want to cancel the life insurance policy since your financial priorities have changed, the premiums have become difficult to afford, or the policy you have does not meet your needs.

The process mostly depends on whether you are in the free

-look period, have stopped paying premiums or want to surrender your policy later. So, before making the decisions, it is important to understand how to cancel a life insurance policy, the consequences and others. It also helps you avoid unnecessary financial losses and make informed decisions.

What Does Cancelling a Life Insurance Policy Mean?

Cancelling your life insurance policy means terminating your coverage before it reaches its scheduled maturity period. Nonetheless, cancellation, lapse and surrender are different ways in which a policy may stop providing coverage.

For example, you purchase a life insurance policy with a ₹10 lakhs sum assured for 10 years. The applicable premium is ₹20,000/-. However, you soon realise the coverage amount is not enough, and you need to reconsider.

So, in such scenarios, if you think about how to terminate a life insurance policy, you can cancel it during the insurer-specified free-look period. You can approach your insurer, request a cancellation and, depending on their terms, they will cancel your policy and may provide a refund after deductions.

Thus, cancelling means returning your newly purchased policy within a few days. Surrendering means you are voluntarily terminating an eligible policy (e.g. plans with a cash component) after the policy meets its specified eligibility conditions for surrender.

A lapse happens if you stop paying premiums for a plan even after its grace period. Hence, a Cancellation during the free-look period, surrender after the free-look period and lapse due to non-payment of premiums are different situations. Each is subject to applicable policy terms and regulations. A policy may lapse if premiums remain unpaid beyond the applicable grace period; revival, if available, is subject to policy conditions and the insurer’s requirements. Consequences for life cover, benefits and any amount payable differ by policy.

When Can You Cancel a Life Insurance Policy?

As you look to cancel a life insurance policy, you must note that the Insurance Regulatory and Development Authority of India (IRDAI) has standardised a free-look period for policy cancellation for buyers’ convenience.

Life insurance policies may be subject to a free-look period during which a policyholder can review the policy terms and request cancellation, subject to applicable regulatory requirements. The applicable period, eligibility, procedure and permitted deductions should be checked against the policy document and prevailing IRDAI regulations.) If you wonder what a free-look-period is, it is the time frame that begins after your policy purchase date. Within this time, you can carefully review your policy documents, features and benefits. You may opt to cancel if it does not fit your needs. It applies to policies of one year or more.

The free-look cancellation option generally applies only within the specified period. After that, you may surrender the policy if its terms and applicable rules permit it. In that case, you may wonder how to stop a life insurance policy after a free-look period. If your policy allows, you can surrender it.

However, the Eligibility for surrender value, the timing of acquisition of surrender value and the amount payable depend on the policy type, premiums paid, policy terms and applicable regulations.

While some policies may not acquire a surrender value, check your policy document or contact your insurer for a policy-specific calculation.

If you want to cease a policy through a lapse, you must look for its grace period. The applicable grace period depends on premium payment frequency, policy terms and prevailing regulatory requirements. Refer to the policy document or contact the insurer to confirm the applicable grace period and consequences of non-payment. Insurers generally offer 15 days for monthly instalments and 30 days for quarterly, half-yearly or annual payments. Non-payment beyond this period results in a lapse, and you must understand any subsequent consequences regarding the plan.

How to Cancel a Life Insurance Policy in India?

For instance, if premiums go over your expected budget, coverage is unsatisfactory, or for other reasons, you may look for the steps of the life insurance policy cancellation process. Here is a detailed guide:

Step 1: Review the policy documents carefully. Understand the lock-in period, cancellation eligibility, surrender value (if applicable) and other relevant policy clauses. 

Step 2: Contact your insurer through official channels, website or mobile application. Enquire about the cancellation process, the requirement of submitting a surrender form, policy documents, etc.

Step 3: After getting clarification on how to cancel a life insurance policy, complete the necessary paperwork. Attach identity, address verification documents, bank details and other documents as requested. 

Step 4: As your insurer approves your request, they may provide you with an acknowledgement number. Stay updated on the cancellation and any payout that you are eligible for.

Please note that the processing timeline may differ as per the type of policy and request made.

What Documents are Required for Life Insurance Policy Cancellation?

As you have noted in the steps for how to cancel a life insurance policy above, you may need to submit some documents. Here are some of the key documents that you need to keep handy:

• A duly filled cancellation or surrender form.
• Produce the original policy documents you received upon purchase. 
• Furnish officially valid documents as accepted by the insurer for KYC verification 
• Provide documents for address verification (e.g. voter ID card, utility bills, etc.).
• Submit accurate bank details or a cancelled cheque to receive refunds or payouts.
• You may need to produce your updated PAN card as a key document.

Note - The documents required may vary depending on the request, insurer’s process and applicable requirements. These may include a completed cancellation or surrender request, policy details or documents where required, identity and address verification, and bank details for any eligible refund or pay-out. Additional documents may be requested where necessary.

Will You Get a Refund After Cancelling a Life Insurance Policy?

Surrendering your plan generally provides a certain value based on premiums and policy terms. 

Understanding Surrender Value in Life Insurance is important in this scenario, and you must read policy documents carefully. 

If a policy lapses, you should not assume that you will receive a refund. A reduced paid-up benefit, where available, is a continuation of reduced policy benefits and not a refund of premiums.

What Should You Consider Before Cancelling Your Life Insurance?

After understanding how to cancel a life insurance policy, and before you cancel it, you may need to consider the following aspects:

• A cancellation or surrender of a policy leaves your loved one unprotected against unfortunate situations. Before cancelling a policy, assess the potential impact on your family's financial protection needs
• In case of surrender of an eligible plan, its value may be lower than the policy premiums you have paid. 

Purchasing a new plan later may increase your policy premiums since financial, health-related factors, and others may evolve by that time. Also, a fresh purchase requires new underwriting, which may involve you taking medical tests and other processes.

Conclusion

You may need to discontinue your policy for a credible reason. Learning to cancel a life insurance policy helps, as you can discontinue a policy through cancellation, surrender or lapse. Since it ceases the life cover for your family, you must act on this decision as a last resort.

Moreover, before deciding on whether to terminate your life insurance policy, take time to review the insurance needs along with exploring suitable options. You may explore the life insurance plans offered by Shriram Life Insurance to understand available choices and make an informed decision.

Disclaimer - 

Insurance is the subject matter of solicitation. For complete details of benefits, exclusions, limitations, charges, terms and conditions, please refer to the sales brochure and policy document carefully before concluding a sale.

The information provided herein is for general educational purposes only and should not be construed as financial, tax, legal or insurance advice. Policy cancellation, surrender, lapse, revival, benefits and pay-outs are governed by the terms and conditions of the specific policy and applicable laws and regulations