How to Transfer Car Insurance Policy?

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Transferring a car insurance policy is crucial when selling or buying a vehicle. This process ensures that the new owner is covered and avoids future liabilities. Here’s a summary of the key points:

• Protects against future liabilities.
• Retains No Claim Bonus (NCB) for discounts on new policies.
• Raise a transfer request with the insurer.
• Submit required documents, including registration certificate and forms.
• NCB cannot be transferred to the new owner but can be retained for a new car.
• Inability to file claims.
• Potential liability for third-party damages.
• Legal penalties for driving without valid insurance.
• The seller must ensure the transfer within 14 days of sale.

Buying a car, even second-hand, is a big decision, and often, people overlook the essential documentation involved. Car insurance transfer is a critical aspect of selling a car for both the buyer & seller. However, people mostly have no clarity about transferring the ongoing car insurance policy. This article explains why you need to transfer car insurance, the transfer process, and what documents you will require.

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Why Do You Need to Transfer Car Insurance?

Before we learn how to transfer insurance of car to a new owner, let's understand why it is important. A four-wheeler insurance policy financially secures a car from unforeseen risks like a road accident. If you no longer own the vehicle, there is no point in keeping the motor insurance policy with you.

Thus, when you sell your car, you must ensure the vehicle's new owner gets your four-wheeler insurance policy transferred to his/ her name. If you are the one buying a second-hand car, make sure to get the ongoing motor insurance policy transferred to your name.

Besides, there are two reasons why you should transfer car insurance:

1. To Avoid Future Liabilities

   If you have purchased a second-hand car, it is important to get the existing insurance policy transferred to your name to avoid any future liabilities. If you have an accident with your second-hand car, resulting in third-party liabilities, you won't be able to file a third-party claim as you did not get the policy transferred to your name. As a result, you will have to pay off your third-party liabilities on your own.

   Similarly, if you sell your car to someone, you must transfer the existing vehicle insurance policy to the car's new owner. If you don't, you may be liable to pay for the third-party accidental liabilities caused by the car's new owner, as you are still the policyholder of the sold car's insurance policy.

2. To Retain No Claim Bonus

   For every claim-free policy year, you earn a No Claim Bonus that helps you earn a discount on your car insurance renewal premium. When you sell your car, you need to get the earned NCB transferred to your new car so that a discount can be availed on the renewal premium of the new car policy.

   To do so, you need to obtain the NCB certificate from your motor insurance company after informing them about the sale of the car. The NCB certificate cannot be obtained unless you transfer the ongoing motor insurance policy to the new owner of the vehicle.

How to Transfer Car Insurance from One Person to Another In India?

The four-wheeler insurance transfer process works in sync with the transfer of ownership. Once the new owner buys the car, the previous owner's policy does not remain valid.

This is because the name and address of the new owner on both the registration certificate and insurance documents have to match according to the IRDAI to raise a claim. The same name is not possible if the insured car has been sold to another person.

Besides, an insurance name transfer is required because, in case of an emergency, it comes in handy for the new owner to recover the cost of damages. In addition, failure to insure one's vehicle can result in denial of a claim.

You May Also Read: Used Car Insurance

Documents Required to Transfer Car Insurance to New Owner

To transfer car insurance to a new owner, you need to raise a transfer request with the motor insurance provider. Along with a transfer fee, the following documents are required to be submitted for car insurance transfer:

• The new copy of the registration certificate
• Form 29
• Form 30
• Old car insurance policy documents
• No Objection Clause (NOC) from the previous policyholder
• New application form
• Inspection Report (to be carried out by the insurance company)
• No Claims Bonus difference amount

No Claims Bonus in Car Insurance Transfer

In the process of selling a car, the previous owner transfers the registration and insurance details to the seller. However, there is an important exception to the car insurance transfer process, i.e. the No Claims Bonus (NCB).

The No Claim Bonus in car insurance is a 'reward' from insurance providers to safe drivers for not making any claims during their policy year. The NCB percentage can be used to reduce your car insurance renewal premium for subsequent years. In fact, the greater the number of claim-free years, the more the benefit/discount accumulated. However, an earned NCB cannot be transferred to the new owner. It can only be transferred from your old car to your new car.

When an insurance policy is transferred to a new car, the NCB can be retained by producing an NCB retention letter to their new insurer. The letter makes the previous policyholder eligible for an NCB discount on the insurance premium of the new car.

Documents Required for NCB Retention Letter

The insurer will ask for the following documents to issue an NCB retention letter:

• Request letter for policy cancellation
• Original policy copy and certificate of insurance (also called Form 51)
• Form 29 (notice of transfer of ownership of a motor vehicle)
• Form 30 (application for intimation and transfer of ownership of a motor vehicle)
• Photocopy of registration certificate book with the name of the new owner
• Proof of delivery of the car to the new owner

Can No Claim Bonus Be Transferred to the New Car Owner?

No. The No Claim Bonus reward cannot be transferred to the new owner of the insured car. While car insurance can be transferred to the new owner, the NCB can never be transferred to any other party. It can only be transferred to the new car of the same owner.

For instance, if a car owner wants to sell his/her car after the fourth policy year and has never filed a claim during the policy period, he/she is entitled to a 45 per cent NCB discount on the renewal premium of his/her new four-wheeler.

Suppose he/she buys a new car for which the policy premium is Rs. 25,000 and the damage component is Rs. 20,000.

If he/she applies the existing NCB discount to this amount, the premium on the damage component would be reduced by 45 per cent, which works out to Rs. 11,000. Therefore, the total payable premium would be Rs. 16,000 instead of the full Rs. 25,000.

What Happens if the Car Insurance Transfer Remains Incomplete?

Three things can happen if a car insurance transfer is not completed:

• Firstly, if you do not transfer the existing motor insurance policy on your second-hand or used car to your name, you cannot make any insurance claims. This means you will be unable to make a claim irrespective of whether your car suffers damages or you incur any third-party liabilities.
• Secondly, if you do not transfer the motor insurance to the new owner of the car, then the Motor Accidents Claims Tribunal may order you to pay for accidental third-party liabilities for the damages caused by the vehicle driven by the new owner.
• Thirdly, when you switch car insurance and the process does not complete, you will have to pay heavy traffic fines for driving without a valid policy coverage.

Who is Responsible for the Transfer of Car Insurance Policy?

As per Section 157 of the Motor Vehicles Act, 1988, the person who sells the car is responsible for ensuring the transfer of the existing motor insurance policy to the new owner of the car. The transfer should be carried out within 14 days of the sale of the vehicle.

For the first 14 days of the purchase, the third-party cover on the car is automatically transferred and remains active.

However, the own damage cover will become active only after the transfer of the policy from the previous owner to the car's new owner. If the car insurance transfer is not made within 14 days of the car's sale, the third-party cover will also cease to exist from the 15th day.

In a Nutshell

Investing in a new asset requires thorough and meticulous planning. To a buyer, a used car still represents a new investment. So, it is only right that the process includes a proper transfer of rights, ownership, and insurance name transfer to the new car owner. Therefore, make sure to transfer the existing insurance policy to the new owner of the vehicle to avoid falling into any legal and financial trouble.