New car can’t keep old insurance

Pushpa Girimaji

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I have decided to sell my old car and buy a new one. As I have only recently renewed my comprehensive insurance policy, I was wondering whether I can retain it for the new car. If not, what is the best option for me, in so far as insurance is concerned?

You cannot keep your old insurance for the new car. However, you can transfer the ‘No Claim Bonus’ (NCB) earned by you on your insurance policy, to the new policy. This will mean considerable reduction in the insurance premium that you need to pay for the new car.

The Insurance Regulatory and Development Authority (IRDA), on its website meant for policy holders (policyholder.gov.in), defines a ‘No Claim Bonus’ as the ‘benefit accrued to the insured for not making any claims during the previous policy period’. In other words, it’s a discount or a reward given by the insurer to the policy holder for not making any claim in the previous year. The NCB discount however is applicable only to the ‘Own Damage’ premium and not to the third party liability premium and ranges from 20 per cent to a maximum of 50 per cent. That is, it begins with a discount of 20 per cent after a no-claim first year and adds up to 50 per cent after five no-claim years. However, once a claim is lodged, the entire NCB is wiped out in the subsequent policy period.

The IRDA points out that the NCB is given to the insured and not to the insured vehicle. Thus, on transfer of a vehicle, the insurance policy can be transferred to the new owner, but not the NCB. The new owner has to pay the difference on account of NCB for the balance policy period, while the original owner can use the NCB on a new vehicle purchased by him.

If you are buying your new car insurance from a different insurance company, you may need to produce a ‘No Claim Bonus Certificate’. You can obtain this by applying to your insurance company. You need to give proof of sale of the car, photocopy of the insurance policy, car registration certificate copy and your identification proof. These days you can apply online and get the certificate too on your email ID.

After a year, if you wish to change your insurance company, the NCB in your account is also transferred. IRDA says that in order to do that, you need to produce proof of the NCB earned by you. This can be done by showing the renewal notice from the current insurer. Or else, you can ask your current insurer to mail you a letter confirming your NCB entitlement.

My other question is about the transfer of the insurance to the buyer of my vehicle. Can it continue in my name till the buyer renews the policy? After all, the vehicle is the same.

No, the registration and the insurance of the vehicle should be in the same name and address. If not, the insurer can refuse to pay the claim. So, it is extremely important to transfer the insurance to the buyer of the vehicle. There is a set procedure for it. First and foremost, the seller has to inform the insurance company in writing about the sale of the car and the need for transferring the insurance policy. The new owner has to fill a fresh proposal form, pay a nominal fee for transfer along with the additional payment required to cover the NCB, which is not transferred. This is calculated from the date of transfer till the expiry of the insurance. The transfer of ownership in comprehensive/package polices has to be recorded within 14 days of transfer, or else, your claim in case of own damage to the vehicle will not be entertained by the insurance company.

In M.S United India Insurance Company Vs Goli Sridhar and another (RP NO 2964 of 2007), the National Consumer Disputes Redressal Commission looked at this issue in detail and concluded that the ‘automatic transfer of insurance’ stipulated in Section 157 of the Motor Vehicles Act applied only to third party risks and not to damage caused to the vehicle or the insured himself or theft of the vehicle. In so far as risk other than third party risk was concerned, there had to be an agreement between the insurer and the transferee and this was facilitated through an application by the transferee within 14 days of transfer of ownership. In the absence of such an application, the insurer was not liable.