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.

When you buy or sell the car, transferring the existing car insurance is an important step for both the buyer & seller. However, many people are unsure about how the transfer works and when it is required. This article explains the car insurance transfer process from one person to another, its importance and useful tips to smoothly complete the transfer.Read more

Why Do You Need to Transfer Car Insurance?

Transferring car insurance is legally required when buying or selling a pre-owned car. Under Section 157 of the Indian Motor Vehicles Act, 1988, the insurance policy must match the name on the vehicle's Registration Certificate (RC). Here is why:

1. To Avoid Future Liabilities

   • For the Buyer: If you do not transfer the insurance to your name after buying a used car, the policy will not protect you. In case of an accident, the insurance company will reject any own damage or third-party claims. This will make you liable for all repair expenses, legal fees, or third-party damages.
   • For the Seller: When you have sold your car to someone, it is important for the new owner to transfer the insurance policy to their name. If they have an accident and the insurance is not updated, you may face legal disputes and have to pay for the damages caused by the new owner.

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.

Step-by-Step Process to Transfer Car Insurance from One Person to Another In India?

Follow these five steps to efficiently transfer car insurance to another person:

1. Apply for RC Transfer

   Visit your local RTO (Regional Transport Office) or apply for RC transfer online through the Parivahan Sewa portal and submit the following documents along with the prescribed RC transfer fee:

   • Forms 29 and 30
   • The original RC of your car
   • The sale agreement
   • A valid PUC (Pollution Under Control) certificate
   • A copy of your car insurance
   • ID and address proofs of the buyer
   • Form 28 (inter-state NOC, if applicable)
   • Form 35 (loan termination)

2. Inform the Insurer

   Once you apply for RC transfer, notify your insurer in writing. Most car insurance companies accept this notification through their customer portal, email or by visiting a branch.

3. Submit Documents and Pay the Transfer Fee

   When raising a request for transferring car insurance to the new owner, the following documents have to be submitted to the insurer along with a nominal administrative endorsement fee, which may range from Rs. 50 to Rs. 500, depending on the insurer:

   • A copy of the existing policy
   • A copy of the updated RC (or proof that the RC transfer has been applied for)
   • New owner's KYC documents (Aadhaar, PAN card, voter ID or passport)
   • Vehicle sale agreement or delivery note
   • A copy of the buyer's PUC certificate
   • NOC from the financier (if the seller's car was on a loan)
   • A copy of Form 29 and Form 30 (originals stay with the RTO)

4. Vehicle Inspection

   The insurer may arrange a physical inspection of the car (if the car insurance transfer is requested after 14 days) either by sending a surveyor or by asking you to upload photos or a video via the mobile app. This helps them confirm the car's current condition and its IDV (Insured Declared Value).

5. Policy Endorsement

   After vehicle inspection and document verification, the insurer makes a policy endorsement that will show the new owner's name, contact details and the updated policy schedule. Any change in coverage (such as the addition or removal of add-ons) will also be mentioned in the endorsement.

The 14-Day Rule Under Section 157 of the Motor Vehicles Act

Under Section 157 of the Motor Vehicles Act, 1988, the new owner must apply for car insurance transfer to the insurer within 14 days from the date of the vehicle's ownership transfer to update the policy details in their name. During these 14 days, only third-party insurance coverage automatically extends to the new owner. The own damage component does not transfer until the buyer formally applies and the insurer makes the policy endorsement. Missing this window can lead to:

• Own damage claims become invalid if the insurance and RC details do not match
• Legal penalties for driving without valid motor insurance may apply (Rs. 2,000 for the first offence and Rs. 4,000 for every subsequent offence)

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.

Tips for a Smooth Car Insurance Transfer

Follow these helpful tips to make your car insurance transfer process hassle-free:

• Start the transfer process for your car's RC and insurance transfer process at the same time. Do not wait for the new RC to be printed, as a copy of the RC transfer application receipt is enough for the insurer to begin the policy endorsement.
• Carefully check that the name, address and chassis & engine numbers are the same on the RC, the sale agreement and insurance forms. Even one character mismatch can cause delays.
• Once the car insurance transfer is complete, ask the insurer for written proof that your (the seller's) name has been removed from the policy.
• If you are selling the car, keep your NCB before you sign over the policy.
• If you are buying the car and the policy is near its expiry, it is better to renew it rather than transferring. A new policy in your name will keep things simple.

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.