You decide to purchase a second-hand car. You find a model that suits your penchant- subsequently, find a seller and negotiate a reasonable price. 

You finally transfer the registration certificate of the car to your name, and that’s it! 

But wait! You missed an essential step! 

You did not transfer the car insurance policy from the previous owner to your name. 

Given the current economic atmosphere in India, second-hand car sales have witnessed a considerable surge in recent years. It is anticipated that the Indian second-hand car market will flourish from 20% in the financial year 2021-2022 to 45% in the financial year 2026 -2027.

But when it comes to the formalities that need to be fulfilled for such shift of ownership, most people possess a hazed concept of the transfer of car insurance policy.

What is Car Insurance Transfer?

It is the process of transferring a car insurance policy from its existing holder to another party, who holds the ownership rights to such vehicle. You need to be clear on this front when you purchase or sell a second-hand car. 

In other words, it formalises the withdrawal of one party from an insurance policy contract and subsequent admission of another party. As per Section 157 of the Motor Vehicles Act, it is mandatory for both parties to transfer car insurance policy within 14 days from the date of purchase.

What happens during those 14 days?

In case it is a third-party liability cover, then coverage is automatically transferred upon purchase and remains active for those 14 days. In 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.  

Let’s continue with the illustration mentioned at the beginning. 

You conclude transference of the registration certificate from the previous owner and consider it the end of your deal.

Unfortunately, you meet with an accident after a month where you crash into another individual’s vehicle. You compensate for their losses and subsequently raise a claim with the car insurer. But, the insurance company denies your claim.

Why Shall the Insurer Deny Your Claim Even when You Own the Vehicle?

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. 

In simpler terms, you cannot file a claim with an existing car insurance policy if the status of the policyholder has not been transferred to your name, even if you legally own the car.

It is because the policy contract was made between the previous car owner and the respective insurance provider. Ergo, the insurer is legally obligated to settle claims filed by the legitimate policyholder and not someone who merely owns the vehicle. 

Hence, when purchasing a second-hand car, ensure that the existing car insurance policy has been duly transferred to your name.

Is the Car Insurance Policy Transfer Also Necessary from a Seller’s Point of View?

An insurance policy transfer is equally important to a buyer and a seller.

In case you sell your car but do not transfer its insurance policy, you might 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.

No Claim Bonus

It is also essential from a seller’s perspective, with respect to 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 are allowed 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 discount benefits available on account of the number of claim-free years are mentioned below.

Wouldn’t it be Unfair, if Someone else Reaps the Benefits of your NCB Accumulation?

Henceforth, it is not possible to transfer your No Claim Bonus unto another party, even though you have transferred your car insurance policy.

When you sell your car and subsequently transfer the car’s registration certificate as well as its insurance policy to the buyer, you are facilitated to retain your NCB. 

Upon successful transference, you need to acquire an NCB retention letter from such insurer which you can then carry forward to a new car insurance policy and avail such discounts on its premium.

Without car insurance policy transfer taking shape, you will not be allowed to carry forward your NCB benefits.

You need to apply for a car insurance transfer with the respective insurance company. In order to transfer such insurance policy, you need to pay a transfer fee along with the documents mentioned below:

• Application form
  
• Form 30
  
• Form 29
  

• NOC (No Objection  Clause) from the existing policyholder

• Inspection report – conducted by the insurance company
  
• New registration certificate
  

In case your Regional Transport Office (RTO) prolongs ownership transference in the registration certificate, you can apply for a car insurance transfer with the other documents.

However, any insurance company will not settle claims if they do not have a copy of the transfer of registration certificate. Hence, you need to submit it with the insurance company as soon as a new RC is provided to you. 

Are you clear about car insurance policy transfer, now? Great! 

The next time you sell or purchase a second-hand car, ensure to see through the process to its last detail. It will allow you to avoid any unnecessary hassle, both financial and legal, later on. 

What Are the Other Things Which Need to be Transferred for a Second-Hand Car Sale?

Other than car insurance name transfer, you also need to exchange other documents essential to a second-hand car sale.

The primary document in this respect is the registration certificate which formalises transfer of car’s ownership. Other than that, as a buyer, ensure to procure the following documents from the seller:

• 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 sign Form 29 and 30 to make the transaction effective. It is also important to transfer the policy within 14 days and submit the proposal form and sale deed of the ownership of the vehicle.

Still not convinced about the gravity of car insurance policy transference? Let’s take a look into a few scenarios when a policy transfer is quintessential. 

Scenario 1 - You have finally managed to save enough finances to purchase a second-hand car. You go online, search for a few second-hand car models and decide on one of them. You ask the respective seller about how many kilometres it has run in its lifetime, and for how long has the car remained active. 

You find the answers to your satisfaction and decide to purchase it. You negotiate its price and accordingly make your payment. Subsequently, you apply for the transference of registration certificate to your name but delay the application for car insurance policy transfer unless RC transference is concluded. It takes a month, after which you apply for a car insurance policy transfer. 

Now, after a few weeks, your car’s engine starts acting up. You take it to repairs to one of the insurer’s network garages and file a claim for cashless repair. But it denies settling your claim as you are not the one with whom they entered into a contract. You lodge a complaint against them, but it is refuted on the grounds that you are not the policyholder and ergo have no right to file a claim. 

It is because you needed to apply for the necessary changes in policyholder status within 14 days of purchase, as per the Motor Vehicles Act 1988. 

Scenario 2 - You decide to sell your car, which you have used for 3 years. It has an active insurance policy, valid for 2 more years. You find a buyer who agrees to pay a reasonable price for it. The car’s registration certificate is transferred accordingly. But, you did not transfer the existing insurance policy under the assumption that it will be transferred automatically. The buyer assumes the same and no changes are made to such an insurance plan. 

A few weeks later you receive a notification from your district court asking you to settle a claim made by a third party on account of an accident. You find out that your car’s buyer was involved in an accident, where he crashed with another bike. He filed a claim with the insurance company, but it was refuted as you are still the policyholder. Hence, the legal onus is on you to compensate for the losses of the third party to whom damage was caused by the buyer. 

Both the instances sound unreasonable and unfair, right?

Unfortunately, the law is designed that way to compel individuals to transfer insurance policy as early as possible after a second-hand car transaction is made.