FAQs on Cancellation of Motor Insurance Policy

Q: What is the main document I need to return to cancel a policy?

A: To cancel the Motor Insurance Policy, you need to return the original "Certificate Of Insurance" to the insurer. If you do not have the "Certificate Of Insurance", try looking for a document called "Cover Note". This may be acceptable to the insurer, in lieu of the "Certificate Of Insurance".

Other documents, eg policy schedule, tax invoice, debit notes etc, are NOT needed nor necessary. These documents CANNOT be used to cancel a Motor Insurance Policy.

Q: I have misplaced my Certificate of Insurance. What should I do?

A: If you have has misplaced this Certificate of Insurance, then a Declaration of Loss of Certificate of Insurance has to be signed by the insured and this original Declaration of Loss can be given to the insurer to effect the cancellation. You could download the standard format for such a Declaration from here.

Q: When is the effective date of cancellation of the policy?

A: Normally, this is the date the insurer receives the Certificate of Insurance.

Q: Can I backdate the cancellation?

A: Normally, insurers do NOT encourage you to backdate a cancellation. However, if for special reasons, you need to backdate the cancellation of the policy, ie earlier than the date you return the original Certificate of Insurance, kindly furnish some documentation to prove that the vehicle was handed over to another party, eg a handing & taking over note (car dealers normally give the seller a copy) or a scrap certificate, as the case may be. The insurer may consider to use this proof to backdate cancellations. But some insurers have a certain time limit, eg backdating not more than 2 weeks.

Q: How is my refund computed for my cancellation?

A: The amount of cancellation refund shall be based on standard policy conditions and subject to there being no claims (including reserved claims) on the policy. For details, please refer to your policy.

For most insurers, the cancellation refund schedule looks like the following:

Policy Not exceeding	Refund % *
1 week	87.5%
1 month	75%
2 months	62.5%
3 months	50%
4 months	37.5%
6 months	25%
8 months	12.5%
8 months or more	0%

* Suppose you paid a premium of $1200 (round figure for easy computation). You decide to cancel the insurance just before the 2^nd month is up. Based on the above table, you would be entitled to 62.5% refund of the premium paid, ie $1200 x 62.5% = $750.

Most clients would think they would just be charged the used part of the insurance, ie on a pro-rata basis. In which case, they expect to be refunded with 10/12 x $1200 = $1000.

Unfortunately, the above is NOT always true. You need to check the policy conditions.

Q: My agent tells me, whether you cancel the policy immediately or 5 days later, there is no difference in refund. Why?

A: You may thus notice that if the above situation applies (ie the non pro-rata refund), then it may make no difference to your refund premium if you cancel the policy 1 day after the 2^nd month vs on the last day before the 3^rd month. You still get back only 50% of the premium.

However, if you are closing to the end of the 3^rd month, then hurry up. Because once you cross over to the next band, ie after the 3^rd month, then you only get back 37.5% of the premium.

Q: Do all insurers adopt the above method to compute refund?

A: No. Different insurers have different methods to compute refund. Some insurers use formula like 85% of pro-rata refund. Others may specify that after the first year, ie the policy has been renewed, pro-rata refund may be given. During the first however, the above table may apply. This refund method does vary with different insurers so you need to check your policy conditions.

Q: Under what conditions can I get a pro-rata refund for the insurance policy? This seems to be the most advantageous for me, right?

A: Yes. A pro-rata refund is likely the best possible deal for you. Normally, if you buy another policy from the same insurer, you will likely be given a pro-rata refund for your cancellation.

Q: My insurer tells me there is NO refund for my policy! And I have only used up less than 3 months of the entire 12-month policy. Why?

A: Very likely, there could be a claim on the policy. For most insurers, once there is a claim (including a pending or reserve claim), the insurer does not give any refund even if the policy has been cancelled.