Ownership Transfer In Motor Insurance In India

A car is an asset registered under your name by regulation just like the property. When you decide to sell your car, you cannot ignore the transfer process for your insurance lightly. You will need to understand the process well and ensure you deal with your car insurance policy appropriately.

This article gives you the complete run down of processes you need to follow with respect to car insurance, when youare selling your car.
 

How Can You Transfer The Motor Policy to The New Owner's Name?

• As soon as you sell your vehicle, the first and foremost thing you should do is transfer ownership to the new owner.
• As soon as you have transferred the ownership, the insurance policy must also be transferred.
• You can transfer the policy registered on your name to the new owner's name by raising a request to the insurance company along with a certain transfer fee that needs to be paid by the new owner as well as a certain list of documents required by the insurer.

• You need to submit relevant documents to raise a transfer request. These include -

  Receipt from RTO for Forms 28, 29, and 30 (application form with the buyer's and your signature) and proof of sale.

  The new copy of the Registration Certificate.

  Old car insurance policy documents.

  No Objection Clause (NOC) - In case the car is being sold to someone outside the state of registration, you need an NOC. NOC is a legal document issued by the regional RTO for the re-registration of a vehicle from one state to another. Holding an NOC proves that no taxes are due on the vehicle..

  Some insurers within a state may also ask you for an NOC which says that you have no objection io transferring the policy in the new owner’s name.

  New application form (varies from insurer to insurer)

• Inspection report : On raising the request to the insurance company, the insurer will schedule an appointment for inspection of the vehicle. A report is generated post the vehicle is inspected.
• The motor insurance company rewards you with the No Claim Bonus(NCB) if you have not registered any claims during the policy period. Insurers provide a percentage of NCB that increases every year as long as there are no claims availed in the previous policy and this NCB is given as a discount on the premium when you renew your vehicle insurance policy. Please note that the NCB (if any) cannot be transferred to the new owner as the NCB is provided to the owner of the vehicle for his safe driving skills and the caution he has exercised. It is not offered on the vehicle. So the new owner of the vehicle will not be eligible for any No Claim Bonus at the time of the ownership transfer. The new owner is also required to pay the No Claim Bonus difference amount (if any).
• After the transfer fee, NCB difference (if any), and the documents submission, the insurance company shall transfer the policy in the new owner's name within a certain number of days.
   

Let's Understand The Transfer Of Policy Under A Different Scenarios

Maneesh decides to sell his 3-year old Baleno car, which has an Own Damage Motor Insurance Policy with Rs 5 lakh coverage. Manoj wants to buy a second-hand car and finds the Baleno is in the good condition. Maneesh finds the deal pretty good and decides to go for it.

• Scenario 1

  Maneesh transfers the vehicle to Manoj’s name, but he finds the transfer of a motor insurance policy unnecessary, so he skips it. Unexpectedly, Manoj meets with an accident causing total damage to the car; he thinks that the policy on the vehicle is still active and raises a claim to meet his financial losses. The insurance company finds the names are different in the RC and the policy; hence rejects the claim.

• Scenario 2

  Maneesh transfers the vehicle to Manoj’s name and also transfers the policy. Unfortunately, Manoj meets with an accident causing damages to the car, so he raises a claim to meet his financial losses. The repairing costs amount to Rs.3 Lakhs. The insurance company reviews all the documents submitted by Manoj and finds them to be authentic. Now, the claim is approved, and he shall get Rs.3 lakhs for the damage caused.
   

Why Is It Important To Transfer The Insurance Policy?

For Protection Against Future Liabilities

One of the most important principles of insurance is "Insurance Interest" - this means that the person who owns the policy should have a financial interest in the asset they are insuring. If there is no financial interest then one cannot insure an asset. For instance, you cannot insure your neighbour's or friend's property.

Similarly, when insurers will cover a car under a car insurance policy, it will only pay the claim if the person mentioned in the policy is the owner of the policy, validated by the Registration Certificate (RC)

It is therefore extremely important for you to legally transfer the asset on your name, if you are buying a second-hand car, and then buy an insurance policy for yourself. Insurers will check the RC copy at the time of claim settlement, and in case of a mismatch, they will decline your claim.

For instance,

Raj wants to sell his car and transfer its Comprehensive Motor insurance policy. The policy had a No Claim Bonus from past 3 years, amounting to a certain percentage. He decides to purchase a new car and opt for a new insurance policy from a different car insurance provider. Its premium is Rs. 20,000. Raj is eligible for an NCB discount on premium as he submits the NCB retention letter to the insurer. So, he is entitled to a particular discount due to the NCB retained in the previous policy since last 3 years.

The effective premium would be -
Rs.20,000 - (x% of the premium) for that year.

In this case, x% represents NCB.
 

What Happens If You Don't Transfer The Motor Insurance Policy?

According to Section 157 of the Motor Vehicle Act, you must transfer your insurance policy to the new owner within 14 days after selling your vehicle. If you do not transfer the motor insurance policy to the new owner, then the insurer will not cover the financial losses arising from third-party damages or personal damage. The court may send a legal notice to you to reimburse the third party for the loss they incurred due to the accident caused by the new owner.

Transferring your insurance policy is crucial for you and the new owner when selling your vehicle. In order to ensure a seamless transfer, make sure all the necessary documents, transfer fees, and NCB difference amount (if applicable) are duly submitted to the insurer on time. You should read the policy wordings carefully before making a purchase so that you don't encounter any surprises during the policy transfer.