Can a car insurance policy be cancelled at any time? If it is cancelled, would there be any penalty?


A policyholder could opt to cancel the car insurance policy whenever it is so desired. A proper notice to this effect should be sent to the insurance company. In certain cases, the insurance company might state that the original insurance policy should be returned or the company might ask the insured person to sign a paper termed as ‘policy release’. In case of such cancellation, the insured person would be responsible for the premium earned up to the date of policy cancellation.

The financial penalties for premature cancellation would be stated in the policy conditions, if such penalties exist. Majority of the policies stipulate a ‘short rate’ penalty for premature cancellation of the policy. This means that the insurance company would retain a portion of the premium. To cite an example, if the car insurance policy is for one year and the cancellation is done after six months, the insurance company could retain more than half of the annual premium as short rate penalty. Further, many insurance companies impose a special fee as ‘surrender charges’ if the policy is canceled before a certain specific period. However, it is mandatory that the terms and conditions of the insurance policy should clearly state all the penalties and surrender charges of the premature cancellation.