- Date : 06/11/2015
- Read: 3 mins
It is far better to cancel the policy that does not meet your needs than to be under an illusion of being insured and be at sea if and when an unfortunate event strikes. Here’s how policy holders can take control of their insurance policies.
Smriti was confused.
Her financial planner told her that the policy she had purchased was not in line with her needs and that she should immediately cancel it.
Smriti was not sure whether she should do that as the term of the policy was not yet over, and thus, sought my advice over a cup of tea.
Smriti is not the only one plagued with this helpless confusion.
Many consumers end up purchasing insurance without doing adequate homework. As a result, the policies they purchase do not meet their needs and over time, become a drain on the policy holder’s financial resources.
Can you cancel the policy before its term is over?
The answer is: Mostly yes.
However, it will depend on case to case basis because the cancellation provisions are guided by the particular insurance policy’s terms and conditions. So you need to read the fine print to know whether you can go ahead and cancel and what will be the financial implications of your decision.
On the positive side, IRDAI, the regulatory body for insurance in India, has ensured that insurance companies specifically disclose the terms and conditions on renewal in their policy document.
As per Clause 6 & 7 of IRDA (Protection of Policyholders Interests) Regulations, 2002, insurers (both life and non-life) are required to explicitly state the conditions of cancellation of insurance policy. Further, as per Clause 5(m) of IRDAI Health Insurance Regulations, an insurer has to fully disclose the conditions on cancellation of policies.
Also, one must be aware of the mandatory free-look period of 15 days from receipt of policy document that insurers must to provide to its policyholders. If you purchase a policy today and cancel it within 15 days, you’ll get a refund of your premium less some minor deductions for proportionate risk cover, medical charges and stamp duty.
Before cancellation, read policy wordings
So, if you are planning to cancel a policy, you need to first check the policy wordings which are available with the welcome kit that you would have received when you purchased the policy.
In case of life insurance, it will depend on what type of insurance policy it is. If is it is traditional or a unit linked policy, you need to keep in mind the treatment of discontinued products and taxation aspects of surrender.
In case of pure risk covers like term insurance, mediclaim, personal accident etc. which are renewable annual contracts, insurers usually provide for a cancellation clause in the policy wordings. Depending upon the time period for which the policy was active till cancellation, insurers deduct premium and refund the balance to the policyholder.
How to cancel your policy
For cancelling the policy, you will have to visit the concerned office of your insurance company. You’ll be required to fill the surrender application form and submit the original policy certificate and a copy of your ID proof.
In case if there is a surrender benefit that you are entitled to get, you’ll also be required to submit a cancelled cheque copy and mention the name of the bank where you have an account so that your insurer can credit the funds. Cancellation is generally processed within 7-10 working days, however, the actual timeline will vary from insurer to insurer.
Points to note before you cancel your policy
One must remember the following points before cancelling the policy:
- The insurance cover offered by the policy will no longer exist after cancellation. So it is a better idea to first purchase a new policy and then to cancel your existing policy.
- At the time of giving the request for cancellation, you need to hand over the original copy of policy certificate. As a precaution, you should keep a photocopy of the same for your records and take an acknowledgement of submission of certificate from insurance company.
- Preserve the receipt/confirmation from your insurance company for surrender/maturity for tax purposes.
- Especially in case of life insurance, inform your spouse/family of the cancellation so as to avoid any confusion at the claims stage.
How did Smriti feel?
After my discussion with Smriti, she felt much better and far more empowered to take a decision on her policy.
It is far better to cancel an insurance policy if it does not meet your needs than to be under an illusion of being insured and find yourself at sea if and when and unfortunate event strikes. As goes with purchase, cancellation of policy should also be a well thought out decision.
If you want to know something more, leave it in the comments below and we’ll get back to you.