- Free look-up period
- Surrender value
- Policy selling
How To Cancel Life Insurance Policy?
In certain instances, policyholders may want to cancel their life insurance policy. Sometimes to cancel the policy an individual stops paying the premium amount. In certain circumstances, they must surrender their life insurance policy or sell it to a third party (brokers or investors). So a policyholder must consider all the options available to cancel their life insurance policy.
The following steps have to be followed to cancel your life insurance policy:
- Firstly you have to contact your insurer. You can contact their customer support using e-mail or toll-free contact number. Inform them that you want to cancel your policy.
- The insurer will offer you possible alternatives for canceling the policy.
- If you still want to cancel your policy the insurance company will provide you with the surrender form. The policyholder must complete the same and submit it back to the insurer.
- The insurer will follow the necessary procedures from their side and cancel your policy. You will get a notification once your policy gets canceled.
Different ways of canceling life insurance policy
A policyholder may stop paying the premium and their policy will automatically lapse and cancel. Other different ways of canceling a life insurance policy are:
-
Cancellation during the free look period
Some insurance companies provide a free look-up period to policyholders. Look up period is a time duration of usually 15 or 30 days during which an individual can cancel their policy and get a full refund from the insurance company. -
Cancellation post free look period for surrender payment
When you cancel your life insurance after the free look period you are provided with a surrender value. Surrender value is the amount that is paid by the insurance company to policyholders after deducting certain charges. As per the IRDAI guidelines, an insurer cannot impose surrender charges if you surrender your policy after five years.
Why do people cancel their Life Insurance Policy?
Here are the common reasons due to which people cancel their life insurance policy:
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Unaffordable Premiums
Certain situations may arise due to which policyholders cannot afford their insurance premiums. At that time policyholders either want to cancel or cash out their life insurance policy. -
Misselling by insurer
Policyholders may cancel their life insurance policy if they discover that the insurance company has missell the policy. Generally, misselling occurs when an insurance agent hides or provides misleading information to make a sale. -
Found a better option
When people find a better option from another insurer that best suits their needs and financial requirements they cancel their insurance policy from an existing insurer and choose another life insurance plan. -
Change in financial plans
If the financial plans of a policyholder change they may cancel their existing life insurance policy. Let’s understand this via an example: Suppose Mr Shyam whose age is 30 has a term insurance policy but later he discovers that the coverage is insufficient and wants to secure their loved ones with a whole life insurance policy. Mr. Shyam whose age is 25 is working as a Sales Associate at an MNC. He has a term insurance policy with a policy tenure of 15 years. After five years he was promoted to Regional Sales Head and his salary was also increased. He decided to cancel his term insurance policy and opt for a whole life insurance policy as the term insurance policy seemed insufficient to protect his family financially in his absence.
Alternatives available to canceling your life insurance policy
The canceling of a life insurance policy is not the only option available to a policyholder. Here are the alternatives a policyholder can consider:
-
Ask your insurer for a new medical exam
You may ask your insurer for a new medical exam if there is a change in your lifestyle habits. If you have quit smoking or alcohol intake you can qualify for lower premiums. -
Decrease your coverage amount
Some insurance companies allow you to decrease your coverage amount at least once during the policy term. Instead of canceling your life insurance policy, you can ask your insurer if they provide such an option. -
Sell your policy
If you cancel your life insurance policy the surrender value may involve a lot of charges. To avoid such charges you can sell your policy to a third party. They can be brokers, investors, or bankers. The amount paid by a third party is generally greater than the surrender value paid by insurance companies.
Conclusion
Certain situations may arise due to which you have to cancel your life insurance policy. However, you have to think twice before arriving at a final decision. To make sure that you arrive at the right decision it is necessary to evaluate the pros and cons of cancelling your policy. You can also opt for alternatives instead of cancelling your life insurance policy.
How To Cancel A Life Insurance Policy?: FAQs
1. Can you cancel your life insurance policy?
Yes, you can cancel your life insurance premium. It is recommended to cancel your policy within the free look-up period to avoid any charges. After a free look-in period, surrender charges may apply.
2. How to terminate life insurance policy?
To terminate the life insurance policy you can either stop paying premiums which results in policy lapse or you can surrender your policy to the insurer.
3. Is there any penalty imposed by an insurer to cancel your life policy?
Yes in most cases, there are certain penalties or charges imposed by the insurer company to cancel your policy.
4. What are the IRDA guidelines on surrender amount paid to a policyholder?
As per IRDA guidelines no surrender charges would be imposed by the insurer if you cancel your policy after 5 years.
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