How to cancel your life insurance policy

How to Cancel Your Life Insurance Policy?

Are you worried that you took a life insurance policy blindly?

Did you think it to be a life-saver and now you don’t think so?


Did your insurance agent mislead you with the wrong facts?

The most common reason for cancelling life insurance is due to mis-selling of the insurance policies.

Insurance agents and relationship managers mislead and make you fall prey for their policies.

Whether you need it or not, they are anyway going to sell it to you, by their false claims.

They do this to get their incentives.

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Here are some of the tactics used by them

  • They promise you to get better returns compared to a fixed deposit.
  • They don’t tell you the benefits of the policy clearly.
  • They incorrectly state what can be claimed.
  • They give misleading information on premiums.

Do not fall for these kinds of marketing strategies used by insurers to get their business going.

They do this to achieve their targets and for commission.

The reasons you want to cancel the insurance policy may be

  • Mis-buying.
  • The reason you bought has changed.
  • You are not able to pay the premium.
  • You no longer need it.

Cancellation during Free-look period

Every life insurance policy has a “grace period” also called the “cool off period,” within which you can cancel the policy.

If you cancel the policy during this period, you are eligible for a refund of all the premiums that you have paid till then, and will not be charged.

How to cancel your policy during the free-look period and get a refund?

They give you 15 days as a free-look period, from the date of receipt of the policy. This is for you to review the terms and conditions.

If you are not happy with the terms, you can simply cancel the policy by stating the reason for cancelling. You will get a refund if you cancel it during this period.


  • This period is extended to 30 days in case of online sales.
  • You have to prove the date of receipt of the policy.

The process involved in cancelling your policy

  • You have to inform the insurance agent that you wish to cancel the policy.
  • Usually, he tries to convince you and make you retain the policy and not return it. He does this to achieve his targets and not to lose his part of the commission. So be wise and firm in your decision of cancelling the policy.
  • For this, you have to download the cancellation form, from the insurance company’s website or get a copy directly from the insurance office.
  • Cancellation Form

  • After this, you will have to fill in details such as policy details, date of receipt of the policy, agent details and reason for cancelling.
  • After this, the insurance company will go on to cancel your policy.
  • No refunds will be made if you cancel your policy after the free-look period.

What is refunded?

Once the refund application is approved, the refund premium is calculated, after deducting the following:

    1. The pro-rated risk premium for the period in the life insurance policy.

    2. Medical examination expenses incurred by the life insurance company.

    3. Stamp duty charges for the policy document

Why should you cancel the policy after the free-look period?

You can opt for Better Performing Investments:

Life insurance is a weak investment as the cash value component is poor. It offers poor returns and low-risk cover. It can be expensive too.

Hence you may feel it is better to cancel it. There are better performing investments available, like Mutual funds, Public provident fund etc. It is better you invest in these, as it will provide you with better returns.

E.g. If you surrender the plan and invest the same premium in equity, you will earn more despite the premiums paid.

Mistakes are fine, but correcting them is what matters:

It is fine if you made a mistake. But now that you have already found it, you have to rectify it.


If you continue to keep your investments in the same life insurance policy, you will not be getting higher returns. So you will have to cancel the policy and go invest where you have better returns.

How to cancel your policy after the free-look period?

After the free-look period, the policy can be cancelled via surrender.
Surrender is the cancellation of the policy; it can be done at any time.

Cancellation after freelook period

If you surrender before maturity, you can get a portion of the premiums paid, after deducting the charges. This is called the surrender value. It exists only in investment-cum-insurance policies like whole life plan, endowment plan, money back plan and Unit Link Insurance Plan.

If you do a mid-term surrender, you would get a sum of what has been allocated towards savings and earnings on them.

Types of surrender value

Guaranteed surrender value:

You are guaranteed a fixed percent of premiums paid depending on when you surrender. This usually ranges from 30 to 90% of premiums.

If you surrender:

  • After 2/3 years, you will get 30% of premium paid.
  • Between 4-7 years, you will get 50% of premium paid.
  • In the last 2 years, you will get 90% of premium paid.

Special surrender value

This depends on the sum assured, accrued bonus if any, policy terms and total premium paid. It can be calculated as follows:

Special surrender value= (paid up value+ bonus) X surrender value factor.

Paid-up value = Original sum assured X (no. of premiums paid /no. of premiums payable).

Surrender value varies from insurer to insurer. It is better you talk to the agent to know the surrender factor value. You will get a portion of your money only if you have paid consecutive premiums for 2 years (If premium paying term is less than 10 yrs). And 3 years (If premium paying term is more than 10 years).

If you surrender before this you do not get any money.

A surrender charge is imposed for surrendering the contract early or for withdrawing money before the agreed maturity date. This varies from policy to policy. It is usually highest during the first year and may drop as the policy matures.

On surrender, you will get the fund value of the investment minus the charges that the insurer levies on account of premature termination.

If you terminate the cover after 5 years, as per recent IRDAI (Insurance and Regulatory Development Authority) directive, insurance companies can’t levy surrender charges.

How to surrender a policy?

1) Inform the insurance company or agent about your decision to surrender.

2) Request a surrender form (The form is usually available at the branch of the insurer).

3) Fill-up the surrender form

4) Send the form by registered post or you may choose to handover in person. If you are handing over in person, please make sure that you are getting an acknowledgement.

5) Call to confirm if the company received your mail.

6) You will receive your funds in a short time.


As you already know now, life insurance is a weak investment as its cash value component is poor. It offers poor returns, low-risk cover and is also expensive.

There is misselling by Insurance agents, to make business with people who have less or no knowledge of life insurance. Agents earn a commission but the people who took the policy suffer. Do not fall prey for these agents and their business tactics.

It is fine if you already have life insurance, now as you know the procedure for cancelling it, you can go ahead and cancel it, whether it is within the free look period or after the free look period.

If you are not cancelling your poor life insurance investments and not taking a better choice of investing in performing investments, you will not be gaining much return and will be regretting it in the long run.

Hence, it is better you cancel the policy and invest in investments like Mutual funds and Public Provident Fund. You will earn better returns. You will also be glad you took this right decision.


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