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  • Cancellation of a Car Insurance Policy

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    Securing your car with a car insurance policy is necessary as it provides cover for the damages caused to the vehicle due to a mishap. However, it may be possible that you may not be happy with your car insurance provider for various reasons such as dissatisfaction with the insurer, better discounts offered by another insurer, etc. If that’s the case, then you can cancel your car insurance policy with the current insurer and replace it with a new car insurance policy from a different insurer. Failure to replace the cancelled policy with a new one can lead to penalty as well as leave you unprotected against third-party liabilities.

    Before learning about the cancellation of a car insurance policy, it is important to understand the need for a car insurance policy. Listed below are the reasons for having a car insurance policy:

    • As per the Motor Vehicles Act, 1988, it is mandatory to have a car insurance policy. The policy buyer can either opt for a third-party insurance policy or a comprehensive car insurance policy.
    • A comprehensive car insurance policy provides protection to your car for the damages caused due to accidents, natural calamities, fire, riot, car theft, etc.
    • The premium for car insurance depends on the cubic capacity of the vehicle. The third-party policy premium is fixed by the IRDAI every year. However, the premium for a comprehensive policy depends on other factors along with cubic capacity of the vehicle.
    • Other factors which are considered while calculating the premium of a car insurance policy are city of registration, model, manufacturer, no-claim bonus, age of the vehicle, depreciation value, insured declared value, voluntary deductible, etc.
    • Driving without a valid car insurance policy is a criminal offence for which the owner of the vehicle can be penalised. Until the owner purchases at least a third-party policy, the registration of the vehicle will also be temporarily cancelled.
    • Without a car insurance policy, the owner will have to bear the repair cost of the vehicle for the damages caused due to an accident or any other mishap. However, with a proper car insurance policy, you can get the vehicle repaired at any network garage of the insurer with the cashless claim facility.
    • You can also enhance your basic comprehensive car insurance policy with optional add-on covers like engine protection cover, no claim bonus cover, zero depreciation cover, roadside assistance cover, key replacement cover, loss of personal belongings cover, return to invoice cover, and personal accident cover.
    • These optional covers can be purchased for extra premium along with the comprehensive policy.
    • Few standard exclusions of car insurance are drunk driving, terrorist attack, consequential loss, utilised for illegal purposes, driving without a valid license, etc.

    Now that you are aware of the benefits and importance of having a car insurance policy, it is also important to know another aspect of the policy which is the cancellation of car insurance. Cancellation of the policy may be because you are not satisfied with the service provided by the insurer, car is stolen (in the case of a comprehensive car insurance policy, you can make a claim before cancelling it), selling your car, upgrading to a new model, etc. The insurer cannot deny if you want to cancel the policy. However, few insurers prefer that the cancelled car insurance policy be replaced with a new one for the cancellation process to be considered as complete.

    If you are buying a car insurance policy for the first time, the insurer provides 14 days cooling-off period. If within this period, you wish to cancel the policy you can do so. However, if the cancellation is done post this period, the insurer will charge a nominal fee for the same. If the policy exceeds 8 months, then on cancellation, the premium amount will not be refundable. It is better to inform the insurer that you intend to cancel the policy as and when you decide to do so, else the insurer will continue to send reminders of the policy renewal dates. If you do not respond then the policy may lapse which can become a problem when you decide to buy a new policy.

    Here is the process for cancellation of car insurance policy:

    • Inform the insurer immediately when you decide to cancel the policy. Insurers prefer at least 15 days’ notice to begin the cancellation process. The cancellation process is easy and can be done within a week.
    • Usually, insurers require a declaration letter from you (the policyholder) stating your intent to cancel the policy. Cancellation process can also be done via email, depending on the insurer.
    • The insurer will approve the cancellation of your car insurance policy once you have completed the necessary steps as per the policy guidelines.
    • To avoid a gap in your car insurance coverage, apply for a new insurance policy (from a different/new insurer) while requesting a cancellation of your existing policy.
    • Upon submission of the replacement document, the insurer will send you the cancellation form along with any refundable amount of the policy. If you cancel the policy within the completion of a policy year, the insurer is liable to refund the remaining premium amount for the left-over period. For example, if you have paid Rs.30,000 for one policy year, and you decide to cancel the policy after 8 months, you are liable to receive a refund for the remaining 4 months.
    • Make sure that you collect all documents pertaining to the cancelled car insurance policy so there is no problem in the future.
    • Do not forget to transfer your no claim bonus, if any. The NCB discount can be availed on the new car insurance policy which will reduce the premium amount.

    It is strongly advised that do not change the insurer because the other offer is cheaper. The decision to cancel your car insurance policy must be taken lightly, instead, it must be based on significant factors such as enhanced coverage, upgrading to a new model, selling the car, etc.