The Costly Mistake Used Car Owners Keep Making—and How to Avoid It

Used cars are gaining ground in India. Considering how new car prices are shooting up, it makes sense to invest in used luxury cars rather than in new ones.EV. Unlike new cars which can be bought only from authorized dealers and companies, it is possible for us to buy a used car directly from the previous owner. In the past few years, we have seen several cases of used car buyers failing to complete the paperwork the right way- both by intention and otherwise. And by paperwork, we mean the proper transfer of the vehicle’s registration certificate (RC) and insurance. Failing to do the insurance transfer in particular, can lead to serious complications and can turn your pre-owned car ownership into a nightmare!

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Let’s start by explaining the basics. A car insurance policy is a contract signed between the policyholder and the insurer. The policyholder is usually the person who owns the vehicle that’s being insured. When the vehicle gets sold, the ownership changes, and the previous owner’s insurance policy becomes void.

According to the Motor Vehicles Act, every vehicle operating on public roads is required to have a valid insurance cover. Policyholders must have at least 'third-party liability' insurance. When the new owner takes possession of a pre-owned car, the previous owner’s policy goes invalid. If the new owner chooses to drive it without changing the policy to own name, he/she is clearly committing a violation.

In addition to possible legal complications, it can expose the owner to serious financial vulnerabilities as well. The policy may still be ‘active’, but in the event of an accident, the new owner will be denied any claim!

In the event of an accident, the owner will have to raise the claim to get cover for repairs. The insurer will then conduct a thorough investigation of the claim, approving or rejecting the same. If the details in the RC do not match those in the policy- in other words, if the vehicle is still running on the previious owner’s policy, the claim will be rejected outright.

In the case of the Mercedes-Benz E Class that we had talked about in a previous story, the new owner was denied claim, and had to pay the cost of repairs from his pocket. If he had done the insurance transfer promptly, the insurer would have paid for the expenses.

As discussed above, driving with previous owner’s policy is similar to driving one with no policy at all. If an accident occurs, the owner will have to pay for both his car’s repairs and cover for any damage to third-party property and medical expenses of anyone injured as well. This can sometimes be a huge sum.

It can also bring legal trouble. The owner may end up getting additional fines and even imprisonment in some cases.

Another important factor is the No-Claim Bonus (NCB). It is the discount on your insurance premium that the insurer gives for not making a claim during the policy period. It usually ranges from 20% to 50% and increases with each consecutive claim-free year. The NCB is linked to the driver, and not the car. This means that failing to do the insurance transfer will make you lose any NCB amount that the car qualifies for. As the new owner, you will have to start your NCB history from scratch.

Insurance Transfer: How To Do It Right?

It is easy to transfer insurance policy to the new owner’s name. It should be completed within 14 days of RC transfer. You would need the following to do it successfully:

• Formal application to the insurer, from both buyer and seller.
• Copy of the original policy.
• A copy of the new Registration Certificate (RC).
• Duly filled and signed Forms 29 and 30 from the RTO.
• A copy of the sale deed or sale agreement.
• ID and address proof.

There are two ways of doing the policy transfer. One is by transferring the existing policy to the new owner’s name, by paying a small fee and letting the company do a thorough vehicle inspection. The second is by buying a new policy, which is much less complicated compared to the other. This is often the recommended option and ensures the right coverage from day one.

Bottomline

When buying a used car, it is as important to do the insurance transfer as it is to do the ownership transfer. Always make it a point to get both done promptly.