The market for second-hand cars in India is big. Many owners choose to purchase used cars. However, a key aspect gets overlooked while buying a used car -- car insurance transfer. It is incorrect to assume that a car insurance policy previously purchased by the seller would continue to remain active even after the sale of the car. In the process of buying a used car, the car insurance transfer to the new owner is vital so as to avoid rude shocks later on.

What is car insurance name transfer?

In simple words, it is the process through which a previously held car insurance policy is transferred from the selling party to the buying party. It legally formalises the elimination of the seller’s name from the car insurance policy and initiates it to be carried forward under the name of the subsequent buyer. As per Section 157 of the Motor Vehicles Act, it is mandatory for both parties to enable the transfer of car insurance policy within 14 days from the date of purchase of the used vehicle.

14-day window

The Motor Vehicles Act mandates the seller and buyer transfer of the car insurance policy within 14 days from the date of vehicle purchase. If the policy is only a third-party liability policy, it gets automatically transferred at the time of purchase. Additionally, the third-party liability portion of a comprehensive policy also stands transferred at the time of purchase. However, it is important to note that this third-party liability cover would only remain active for a 14-day window from the time of vehicle purchase. If by the 15th day, the parties have not completed the process of name transfer of the previously held policy, the third-party liability would also be rendered invalid and no coverage would be provided.

Transfer of policy

To understand how to transfer insurance of car, it is important to know the documents that are necessary to be submitted to the insurance company:

• Application form expressing the consent to facilitate the transfer

• Form 30 signed by both buyer and seller

• Form 29 signed by both buyer and seller

• No objection certificate from the existing policyholder

• Inspection report: this is conducted by the insurance company as a means to check the fitness of the vehicle in question

• New registration certificate

The insurance company may levy a nominal transfer fee.

Consequences of non-transfer of policy

Vehicle insurance transfer is an important element of any used-car transaction. From the perspective of both the buyer and the seller, it is an absolute necessity.

Buyer’s perspective: As a buyer of a second-hand vehicle, it is in the buyer’s own interest to take the initiative in transferring the car insurance policy to his/her name. Suppose, after purchasing the used car, it runs into some challenges and there are damages to be paid for. You approach the insurance company to compensate you for the expenses incurred but are turned away because the insurance policy wasn’t transferred to you. It is mandated as per the guidelines of the Insurance Regulatory and Development Authority of India (IRDAI), that the insurance policy of a car and registration certificate of the same should bear the same name and address. Hence, in case of a non-transfer, you may have to then bear expenses on your own, even though there would exist an insurance policy on your owned vehicle.

Seller’s Perspective: As a seller of a second-hand vehicle, it is crucial that he/she ensures that the previously held car insurance policy is rightfully transferred. The responsibility is paramount, because in case there is a non-transfer, the Motor Accidents Claims Tribunal may direct you to compensate for any damages which may occur by way of the used car.

No-Claim bonus advantage

No-claim bonus (NCB) is another aspect. It is a reward offered by the insurance company to responsible policyholders who have not filed a single claim during the year. NCB remains an important crux on the basis of which the insurance company offers discounts on policy premiums. The policy premiums would have an inverse relationship with the NCB amount – which means higher the NCB, higher the discount offered and lower the premiums.

The standard discounts offered, basis number of claim-free years, are mentioned below:

It is important to note that while the ownership of your used car, the registration certificate and the insurance policy are liable to get transferred to the new owner; the seller can hold on to the NCB earned during the policy term. The seller would need to acquire an NCB retention letter from the insurance company, upon transferring the car insurance policy. This letter cannot be granted unless the ownership of the previously held car insurance policy has been rightfully transferred to the new owner. On the basis of this retention document, a new car insurance policy could be purchased, and discounts may be availed as applicable.

Conclusion:

While the second-hand car market in India is big, unawareness about the little technicalities could land one in a soup. During such transactions, mostly people concern themselves with only transferring the Registration Certificate and the keys of the car. All of this would remain futile in case an unfortunate event takes place, and the vehicle insurance policy remains incorrectly owned.

The buyer would have to receive the brunt of non-compensation from the insurance company. And even for the seller, to fully utilise the benefits of the No Claim Bonus clause, it remains imperative that he/she shifts the ownership responsibly.

Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.