The current economic situation in India has caused a significant surge in second-hand car sales. This has not been especially down in the recent few years as well. With the increasing interest in buying cars second-hand, it is also imperative to be knowledgeable on the legal procedures that are required for the purchase of one. One of the important transfers for a second-hand car is its insurance policy.
Let us find out all the details you need to transfer your car insurance policy.
What is Car Insurance Transfer?
It is the process of transferring a car insurance policy from its previous holder to a new party, who now holds the ownership rights to that vehicle.
In other words, it is the formal withdrawal of one party from an insurance policy contract and subsequent addition of another party. As per Section 157 of the Motor Vehicles Act, it is mandatory for both parties to transfer a car insurance policy within 14 days from the date of purchase.
How to Transfer Car Insurance?
To transfer car insurance, you need to apply for it with the respective insurance company. You will be required to pay a transfer fee and submit some documents.
The list of documents to be submitted for transfer of car insurance:
- Application form
- Form 30
- Form 29
- NOC from the existing policyholder
- Inspection report – conducted by the insurance company
- New registration certificate
In case your Regional Transport Office (RTO) prolongs ownership transference, it will result in the delay in submission of your new registration certificate to the insurance company. Without a copy of the new registration certificate, no insurance company will settle claims or complete your insurance policy transfer. So, it is important to submit the new RC as soon as it is provided.
To make the entire process stress-free, the ownership transfer and the change of name in the car insurance policy can be done at the same time.
On receipt of all the documents, the insurance company validates the transfer of the cover. It is important to make sure that you initiate the transfer process within 14 days of purchase.
Why the 14-day window?
In case it is a third-party liability cover, the coverage is automatically transferred upon purchase and remains active for these 14 days. In the case of a comprehensive policy, only the third-party component of it is transferred upon purchase.
If the buyer fails to transfer the car insurance policy within the 14-day window, the automatic third-party cover transference is annulled, and no further claims against that insurance policy shall be entertained in the future.
No Claim Bonus
No Claim Bonus is a reward offered by the insurer to responsible policyholders who have not filed a single claim in a year. You can avail of NCB in the form of discounts on your own-damage premium. The more years you spend without raising any claim against your car insurance policy, the larger discount you are entitled to on premiums.
The No Claim Bonus accumulated in your comprehensive insurance policy should be transferred to your name by letting the insurance company know about the sale of your car. This No Claim Bonus can be used for your new vehicle and the transfer of the insurance policy will help you avoid any legal issues that might affect your old car in future.
The discount benefits available on account of the number of claim-free years are mentioned below.
|Number of years||No Claim Bonus|
|5 claim-free years||50%|
|4 claim-free years||45%|
|3 claim-free years||35%|
|2 claim-free years||25%|
|1 claim-free year||20%|
It is also not possible to transfer your No Claim Bonus to another party, even if you transfer your car insurance policy.
You can keep your NCB after you sell your car and transfer its registration and insurance policy cover. All you have to do is to acquire an NCB retention letter from your insurance company which you can carry forward to your new car and avail yourself the discounts on its premium.
This is why the insurance transfer is important not only to the buyer but to the seller as well.
Other Things to be Transferred During a Car Sale
Other than the car insurance and registration transfer, there are also other documents whose exchange are essential for a second-hand car sale. They are:
- Original invoice of the car
- No Objection Certificate (NOC) from the car financier
- Road tax receipts
In addition to this, the buyer and seller must also sign Forms 29 and 30 to make the transaction effective.
Why is it Important to Transfer Car Insurance?
It is imperative to make sure that the car insurance policy is transferred from the original owner’s name to that of the buyer. This is mainly because the liability portion of the policy is deemed to be transferred automatically. But, the own damage cover is no longer valid once the policy is transferred in the name of the new owner.
What this means is that in case the vehicle is held liable for causing damage to a third party, as the new owner, you will not be able to make any personal claim as it will be deemed invalid. But the third party can benefit from this. So, even if your used vehicle is legal on the road without the insurance policy transferred to your name, not having the policy in your name might prove problematic to you in case of any unfortunate accident.
As per the guidelines of the Insurance Regulatory and Development Authority of India (IRDAI), an insurance policy of a car should bear the same name and address as mentioned in its registration certificate.
When you need to claim for any sort of damage to your car, the insurance company will not approve of your claim if the name in the registration certificate and the insurance policy does not match, even if you own the car.
This is because the policy contract was made between the previous car owner and the insurance provider. So, the insurer is legally obligated to settle claims filed by the legitimate policyholder and not someone who currently owns the vehicle.
Finally, from the point of view of the seller, you will be held legally obligated to compensate for losses suffered by a third party for damages caused to him/her or his/her property by the new owner if you do not transfer its insurance policy.