How to Cancel Term Insurance Policy: Step by Step Guide

Imagine realizing halfway through your term insurance journey that your financial goals or circumstances have changed completely. What if you could undo that decision smoothly? If you’re researching how to cancel a term insurance policy, you’re not alone. According to ET BFSI, term insurance purchases among self-employed individuals surged 58% in FY2025. However, while more people are buying these policies, few realize how surprisingly complex the cancellation process can be. While most financial experts, including the advisors at Ditto, do not recommend canceling an existing term plan due to its cost-effectiveness and fixed premiums over the policy’s entire duration, certain situations may make this necessary. For example, if you face a financial crisis, experience affordability challenges, achieve economic independence, or if dependence on the policy no longer exists, you might reconsider your coverage. When that happens, it becomes essential to understand how to cancel a term insurance policy the right way, whether you're still within the free look period or much later in the policy term. And, if you’re unsure about whether cancellation is the right step, Ditto’s advisors are always here to help you weigh your options, understand the trade-offs, and make an informed decision. 

In the sections below, we’ll walk you through your cancellation options and what to expect at each stage.

If you need help choosing the right policy, feel free to chat with us on WhatsApp or book a call at a convenient time—no spam — just honest insurance advice.

How to Cancel Term Insurance Policy: Blog Overview

Can You Cancel a Term Insurance Policy?

Yes, you can cancel a term insurance policy at any point during its tenure. However, the process, eligibility for a refund, and implications of cancellation depend largely on when you choose to cancel the policy.

1) During the Free Look Period

This is a 30-day window (from the day you receive the policy document) that allows you to cancel the policy with minimal hassle. If you choose to cancel during this period, you’re eligible for a refund of the premium, after deductions like medical test fees, stamp duty, and proportionate risk premium. This option is designed to give policyholders time to review the terms and opt out if they’re not satisfied.

2) After the Free Look Period

If you cancel the policy after the free-look period ends, things work a bit differently. In a pure term plan, no refund is provided at this stage. However, if your policy has a Return of Premium (ROP) feature or is a zero-cost term plan, you may be eligible to receive some money back, either at surrender or at a specified maturity point, depending on the plan design.

In conclusion, while term insurance policies can be cancelled at any time, the financial outcome of cancellation depends on the policy type and the timing of your decision.

Next, let’s take a closer look at how to cancel a term insurance policy during the free-look period—the stage that offers the most flexibility and refund potential.

Refund Rules for Cancelling Term Insurance

How to Cancel Term Insurance Policy During the Free Look Period

Cancelling your term insurance policy during the free-look period is the simplest and most cost-effective option. This window allows you to review the policy in detail and decide whether it aligns with your financial goals and expectations.

What is the Free Look Period?

The free look period is a 30-day timeframe that starts from the date you receive your policy document (whether physically or digitally). During this period, you’re allowed to cancel the policy without facing significant financial penalties or long-term commitment.

Benefits of Cancelling During the Free Look Period

If you cancel your policy within the free-look window, you’re eligible for a full refund of the premium, subject to deductions for:

• Stamp duty
• Medical examination charges (if applicable)
• Proportionate risk premium for the days the policy was active

This ensures you don’t lose a significant amount of money while opting out.

Steps to Cancel the Insurance Policy During the Free Look Period

Follow these steps to initiate and complete your cancellation:

1) Review the Policy Document

Go through your policy terms carefully to confirm your eligibility for cancellation and understand any applicable deductions.

2) Draft a Written Request or Fill Out the Insurer’s Form

Most insurers have a specific free-look cancellation form. Alternatively, a formal written request will also suffice.

3) Attach Required Documents

Include the following:

• Identity proof (e.g., PAN, Aadhaar)
• Address proof
• Original policy document (or digital copy)
• Policy number

4) Submit the Request

Send your request and documents via the insurer’s registered email ID or visit the nearest branch office in person.

5) Wait for Processing and Refund

The insurer will review and process your request, typically within 7 to 15 working days. You’ll receive a refund after the applicable deductions are made into your original payment source.

The free-look period is designed to protect you as a consumer, allowing you to opt out if you’re not satisfied with the policy’s features, pricing, or terms. Ensure that you act within the 30-day window and follow the required steps precisely to complete the cancellation process smoothly. If you wish to know more about the Free Look Period, you can also check our comprehensive guide on it. 

Up next, let’s explore how to cancel your term insurance policy after the free-look period, and what your options are if that window has passed.

How to Cancel Term Insurance Policy After the Free Look Period

If you've missed the free-look window, cancelling your term insurance policy is still possible, but it comes with limited financial benefits. Once the free-look period has passed, refunds are generally not available for pure term plans, unless your policy includes specific features such as Return of Premium (ROP) or a zero-cost exit option.

Here are the two main ways to cancel your policy after the free-look period:

1) Let the Policy Lapse

The easiest way to cancel a term insurance policy after the free-look period is by stopping premium payments. Suppose you do not pay the due premium even after the grace period (typically 15 days for monthly & 30 days for other payment frequencies). In that case, the insurer will consider the policy lapsed and automatically terminate it.

• No formal documentation is required.
• The policy ends without any refund or benefits.
• Ditto’s Take: This approach is suitable if you're certain you don’t want the policy and there are no benefits tied to continuing it.

2) Submit a Formal Surrender Request

If you prefer to close the policy formally, you can write to your insurer and submit a surrender request. This option allows for an official exit from the policy, and it involves:

• Drafting a formal letter or filling out a surrender form (you can typically get the form from the insurer’s website or branch.)
• Submit supporting documents like your ID proof, policy number, and a signed declaration.
• Sending the request via email or visiting the nearest branch.

Ditto’s Take:

Surrender Value: When surrendering a policy, note that the surrender value (if any) is outlined in the Benefit Illustration document, which is usually attached to your policy at the time of issuance. For regular term plans, the surrender value is typically zero or very minimal unless the policy has certain features like Return of Premium (ROP) or if you’ve completed a specific premium payment term.

• ROP Plans: If your policy is a Return of Premium plan, you may receive a refund of the premiums paid, minus any deductions for expenses or penalties. 
• Limited Premium Payment Plans: If you’ve been paying premiums for a limited period (like 5 or 10 years), you might be eligible for a small surrender value based on the terms laid out in your policy. 

It’s essential to consult the Benefit Illustration for the precise amount of surrender value, as it varies depending on your policy type and tenure.

Policy Lapse and Revival: If you choose to let the policy lapse by stopping premium payments, your policy will automatically terminate after the grace period (typically 15 or 30 days, depending on the payment frequency). However, most insurers allow a 5-year revival window post-lapse.

During this period, you may revive the policy by:

• Paying all previous premiums (along with any penalty charges if applicable).
• Undergoing fresh underwriting, which could involve medical tests and a reassessment of your risk profile.

The ability to revive your policy and the terms associated with it depend on the insurer’s policies. It’s worth checking with your insurer to understand the specific conditions and whether medical requirements might apply.

Cancelling a term insurance policy after the free-look period is still possible. However, it rarely yields financial returns unless your plan includes specific features, such as Return of Premium or limited pay options. Whether you let the policy lapse or formally surrender it, understanding your policy’s terms is key to making an informed decision.

Now that you know how to cancel a term policy, let’s explore some valid reasons why policyholders might consider taking this step in the first place.

Valid Reasons to Cancel a Term Insurance Policy

Cancelling a term insurance policy is a significant decision, and it often stems from changes in personal circumstances, financial priorities, or policy-related concerns. While term insurance is a long-term commitment, there are several valid and justifiable reasons why a policyholder might choose to exit a plan early.

1) Misunderstood Policy Features or Exclusions

Many policyholders end up canceling their policies after realizing that the coverage doesn't meet their expectations. This might include the absence of critical illness coverage, a waiver of premium rider, or specific features that were initially assumed to be part of the plan. It’s essential to thoroughly understand the fine print when you first buy the policy, as you might discover limitations or exclusions that no longer align with your needs.

2) Affordability Issues

If paying the premium becomes financially burdensome due to a change in income or expenses, continuing with the policy might not be sustainable. In such cases, cancelling may be a practical decision, especially if you plan to revisit coverage later.

3) Switching to a Better or More Flexible Plan

Insurance products evolve, and you may find a newer plan that offers enhanced features, better premiums, or a return of premium option. Switching to a more suitable plan is a valid reason to cancel the current one, provided you ensure uninterrupted coverage.

4) Change in Financial Goals or Responsibilities

If your life stage or financial dependents have changed, for example, if your children are now financially independent, you may no longer need the same level of coverage. Cancelling or scaling back your insurance could be more aligned with your current goals.

5) Dissatisfaction with Service or Riders

Customer service issues, delays in communication, or dissatisfaction with additional riders (such as accidental disability or critical illness coverage) can all contribute to the decision to cancel. If your insurer fails to meet expectations, it may be time to reconsider your options.

There’s no one-size-fits-all reason to cancel a term insurance policy. What matters is that the policy continues to serve its intended purpose, providing financial protection for your loved ones. If it no longer does, cancellation may be a worthwhile option to explore.

Next, let’s look at the key things to keep in mind before cancelling a term insurance policy so that you can make an informed, risk-free decision.

Things to Keep in Mind Before Cancelling Your Term Insurance Policy

Cancelling a term insurance policy isn’t just about stopping payments; it’s a decision that can have long-term financial implications. Before proceeding, consider these key factors to avoid regret or gaps in coverage.

1) Free Look Deadline

If you’re within the free-look period (typically 30 days from receiving the policy), now is the best time to cancel for a refund. Missing this window means you may lose the chance to recover most of your premium.

2) Future Insurability

Frequent cancellations or lapsed policies might raise red flags with insurers when you apply for coverage in the future. It could lead to stricter underwriting or higher premiums.

3) Have a Replacement Plan Ready

Before cancelling your current term insurance policy, it’s crucial to ensure that you have a replacement plan in place. This means researching, selecting, and applying for a new policy that better suits your current needs, whether in terms of coverage, features, or affordability.

Cancelling your existing plan without securing a new one can leave you without financial protection during the transition period. If something unfortunate happens during this gap, your family might not receive any benefits.

4) Talk to an Expert

A certified insurance advisor or financial planner can help you evaluate whether cancelling is genuinely in your best interest. They can also recommend better alternatives suited to your current needs.

5) Keep Documentation

Always retain proof of cancellation requests, policy documents, and any email or written communication with the insurer. This ensures clarity in case of any disputes or follow-up requirements.

Cancelling a term insurance policy should be a carefully considered decision. Ensuring you have alternative coverage, understanding potential consequences, and documenting everything can help you exit the policy responsibly. Up next, let’s explore whether you can get your money back after cancelling, and under what conditions a refund might be possible.

Can I Cancel My Term Insurance and Get My Money Back?

At Ditto, a common question many policyholders have asked us is whether they can recover the premiums paid after cancelling a term insurance policy. While pure term plans do not offer refunds beyond the free-look period, there are specific exceptions where you may be eligible to get some or all of your money back.

Here are the key scenarios where refunds are possible:

1) Return of Premium (ROP) Plan

If you’ve purchased a Return of Premium term plan, you are entitled to receive 100% of the premiums paid (excluding taxes) at the end of the policy term, provided no claim was made during the tenure. However, this benefit is only available if the policy is kept active until maturity, not upon early cancellation.

Ditto’s Take on Return of Premiums Plan: At Ditto, we generally don’t recommend Return of Premium (ROP) plans. While they offer the same life cover as regular term plans, they come with significantly higher premiums. The “refund” you receive at maturity isn't interest-bearing, so over time, it loses value due to inflation. Additionally, charges such as GST and rider fees are deducted, meaning you don’t receive the full amount you paid back. In most cases, a regular term plan paired with smart investing delivers far better value.

2) Limited Payment Term Plans

In these plans, you pay premiums for a shorter duration (e.g., 5 or 10 years), but the coverage continues longer. If you cancel after completing all premium payments, a small surrender value may build up over time. Though not guaranteed or substantial, it’s better than walking away with nothing.

3) Zero-Cost Term Plans

Zero-cost term plans are a relatively new category that offer a special exit option at certain milestones, typically at age 55 or 60. If you opt to exit the policy at that time, you will receive a refund of the total premiums paid (excluding GST). However, this feature must be selected at the time of policy purchase and isn’t applicable if you cancel the policy prematurely or outside the allowed exit window.

While refunds are not standard in traditional term plans, options like ROP, limited pay, and zero-cost term plans can offer some financial return, if chosen wisely and exited correctly. Next, let’s take a quick look at why Ditto could be the right partner when selecting, managing, or even cancelling your term insurance policy.

Why Choose Ditto for Term Insurance?

At Ditto, we’ve assisted over 7,00,000 customers with choosing the right insurance policy. Why customers like Piyush below love us:

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Conclusion

Understanding how to cancel life insurance policy, especially a term plan, can help you make informed financial decisions without unnecessary stress. Whether you're within the free-look period or considering cancellation later in the policy's term, it's essential to understand your options, the steps involved, and the associated financial implications. While pure term plans generally don’t offer refunds after the initial review period, certain features like Return of Premium or zero-cost exit plans may provide partial or complete recoveries under specific conditions.

Before you move forward, take time to reassess your coverage needs, consult a licensed advisor, and ensure you have a backup plan in place. Life insurance is a long-term commitment, but if it no longer aligns with your financial goals, knowing how to cancel the policy responsibly can give you greater control over your future.

Key Takeaways:

• Timing Matters: Cancelling within the free-look period can save you money. Afterward, refunds are limited to specific plan types, such as ROP or zero-cost exit plans.
• Policy Type Affects the Refund Outcome: Regular term plans offer no refunds after the free look period. Refunds are only possible under ROP, zero-cost term, or limited pay plans.
• Don’t Cancel Without Backup: Always secure a new policy first before cancelling the existing one to avoid gaps in coverage.

Talk to a trusted insurance advisor before making a final decision. And if you're still exploring better-suited coverage options, platforms like Ditto can help you compare, switch, or cancel policies, with expert guidance every step of the way.

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