Return of Premium (ROP) term policy is a popular life insurance choice among those who are looking for savings and coverage. However, sometimes policyholders may consider cancelling return of premium term Insurance policy. Cancellation of an ROP policy refers to the act of putting an end to your policy before the set policy duration through surrender, lapse, etc. But what are the consequences of cancelling your ROP? This article provides a complete breakdown of who ROP cancellation affects, when you should consider it, why people go for it, and how it is done.
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What Happens If You Cancel an ROP Term Policy?
Unlike a traditional term insurance policy, which provides the sum assured only if the insured passes away within the policy period, ROP policies provide a return of premiums if the insured outlives the term. Despite being an attractive policy, some policyholders may decide to cancel it due to one or more of the following reasons:
Premiums for ROP policies are generally higher than standard term plans. In case of major financial situation changes, continuing to pay these premiums might become challenging.
As your life evolves, your insurance requirements may change. You might realise that a pure-term plan or another investment product is better suited to your current needs.
Some policyholders may find the returns from ROP policies less attractive than those from other investment avenues, such as mutual funds or direct equity. This may prompt them to cancel and redirect their funds.
Policyholders may feel the policy’s terms, coverage, or benefits are no longer competitive or suited to their needs.
Events such as critical illness, divorce, or the need for immediate liquidity can make cancelling a return of premium term insurance policy a practical choice.
Return of Premium term insurance cancellation options may differ, largely depending on when you choose cancellation and the fine print of your policy.
Most insurers have a free-look period from policy issuance. During this time, if you cancel your ROP, you will get a refund of your premium. There may be minor deductions for medical, administrative costs, and stamp duty depending on your policy.
Cancelling your ROP term policy after a free look period usually means you may forfeit all of your paid premiums. In ROP policies, there are certain conditions for early surrender. The surrender value (if any) is typically much lower than the total premiums paid. Depending on your policy terms, the insurer may or may not pay a surrender of some portion of the unused premium.
When your full term is completed and the insured survives the policy, you get the full maturity benefits. This is exactly what makes the return of policy attractive.
Given the money you invest in a ROP term policy, a careful evaluation before cancellation is necessary. A cancelled ROP term policy may affect you in the following ways:
Once cancelled, your policy ends. Your family is no longer financially protected under this policy.
Most policyholders expect to receive at least a huge proportion of what they have paid, even if they cancel early. However, in reality, the ROP surrender value is usually low, especially in the initial few years.
If surrendered early, you might lose a large portion or all of your premiums.
If cancelled just before maturity, you lose the premium refund that’s the hallmark of ROP term policy.
Midway cancellation nullifies the value of previous premium payments and may force you to restart life insurance planning at a higher cost due to age or health changes.
A policyholder with a ₹25 lakh Return of Premium term plan, paying ₹30,000/year, decides to cancel the policy after 6 years due to financial strain.
Disclaimer: The above example is for illustrative purposes only and does not represent any actual policy terms or monetary values.
Cancelling a Return of Premium Term Insurance Policy might seem like an easy way out in times of financial troubles or altered priorities. However, it has serious downsides. Always evaluate carefully the loss of coverage, the lack of refund, and the forfeiture of long-term benefits. Analyse your financial and coverage aspects and research well before you decide.
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Reviewed by Vaibhav Kumar Kaushik 
Acko Technology & Services Private Limited
#36/5, Hustlehub One East, Somasandrapalya, 27th Main Rd, Sector 2, HSR Layout, Bengaluru, Karnataka 560102
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