Your car insurance policy is a compulsory requirement if you want to adhere to the rules set out in the Motor Vehicles Act, 1988. However, for some reasons, you might opt for a cancellation of your car insurance policy. For instance, if you think you have bought a wrong policy and want to switch to another one, you might want to cancel your existing plan and replace it with another one. Similarly, if you are relocating to an international location and leaving your car behind, you might want to cancel your policy and claim any refunds. Do you know how such cancellations work?
Car insurance cancellations are of two types – free-look cancellations and mid-term cancellations. Let’s explore both –
- Free-look cancellations
After you buy your car insurance plan, you get a cooling off period of 15 days. This is called the free-look period. If you are not satisfied with the policy, you can cancel it within the free-look period and claim a refund of your premium. The entire premium paid is refunded back after deducting the costs incurred in issuing the policy.
- Mid-term cancellations
If you cancel the policy after the expiry of the free-look period, it is called mid-term cancellation of the policy. In such cancellations too, the premium is refunded back. However, the insurance company retains some portion of the premium for the cover provided to you till you cancel the plan. The percentage of premium retention depends on the period after which the policy is cancelled. If cancellation is done in the starting months, 75% to 80% of the premium is refunded. This percentage reduces as the policy period increases. If cancelled after 6 to 9 months of coverage, there might be no premium refund.
So, while in free-look cancellations you get complete refund of your premiums, in case of mid-term cancellations, complete premium refunds are not allowed.
How to cancel car insurance policy
If you wish to cancel your car insurance policy, here are the steps to cancel car insurance policy in India –
- Inform your insurer
The first and the most obvious step towards cancellation is informing the insurance company. You can write a letter to the company informing it about your desire to cancel the plan. Alternatively you can send an email. The insurance company would acknowledge your request and begin the cancellation process. The process might take 7 to 12 working days
- Take guidance from the insurer
Your insurance company helps you with your car insurance cancellation process. It would ask you to submit a declaration stating your intention to cancel the plan. You would have to sign the declaration and submit it with the company. Once these formalities are complete, the company would issue a notification cancelling your policy.
- Avail the car insurance certificate
After the policy is cancelled, you should get a car insurance certificate showing the details of the cancelled policy and the no claim bonus accumulated till cancellation. This certificate is an important document. It would help you use the accumulated no claim bonus when you buy a new car insurance policy.
- Claim a premium refund
If you are cancelling the plan during the free-look period or mid-term, you might be eligible to receive a premium refund. The insurance company would refund the premium either in your bank account or issue a cheque in your name.
- Time for a new policy
Once the old policy has been cancelled, it’s time for the application for new car insurance policy. If a replacement policy is not availed of, you face penalties for driving uninsured. Moreover, you also bear the risk of third party financial liability and damages suffered by your car. So, buy a new policy after you cancel an existing one.
Things to remember
If you have disposed of your car and not buying a new one, you can still retain the insurance certificate you received upon cancellation of your car insurance policy. The accumulated no claim bonus is valid for three months after cancellation. So, you can use the bonus for future policies.
Though rare, car insurance cancellations do occur. If you are also thinking of cancelling your car insurance policy, remember the above-mentioned points.