Selling your car? Don't Forget to Transfer your Insurance Policy

That Indians love automobiles is evident from the number of vehicles on our roads. From an age where they were hardly any car models in the market to today, when they are dozens of options to choose from, the country has come a long way. The Indian automobile industry is one of the fastest growing in the world, with the affordability of cars being a key factor for this growth.

Today, one needn’t be a millionaire to buy a car, for banks offer car finance products which can be used by anyone looking to buy a car. What has made it even easier to own a car is the used car market, which is currently worth around Rs.1 lakh crore, with this number expected to jump to Rs.2.5 lakh crore by 2021. This essentially means that around 66 million cars will be resold over the next four years.

While it has become extremely simple to buy and sell used cars, most people concentrate only on two main aspects: the cost of the car and the condition of the car. We rope in experts who examine the car, giving a value to it. Then comes the bargaining aspect, trying to reach a middle path with respect to the price. While these are important aspects, a majority of those participating in the process ignore one crucial step, transferring the car insurance policy once the sale is completed.

Importance of transferring the car insurance 

It is possible to wonder why transferring the car insurance policy is important after the car has been sold. This can be easily understood through the example of Mr. Rohan, a banker who wishes to sell his hatchback and upgrade to an SUV. He intends to use the money from the sale of his old car as down payment for the new one, hoping to purchase the new car on EMI. Mr. Rohan puts an ad in a prominent portal, asking for Rs.3 lakh for his car. He soon finds Mr. Joy who is keen on buying the car. Both of them meet, with Mr. Joy evaluating the car and deciding to pay Mr. Rohan the quoted amount.

Excited about getting his price, Rohan completes the formalities of the sale, transferring the ownership of the vehicle to Joy. 

Now, in the excitement, neither Rohan nor Joy think about the car insurance policy, which continues to be in Rohan’s name. One might assume that transferring the car insurance policy is not needed, but two simple illustrations show why both Joy and Rohan should have insisted on getting the transfer done.

Situation 1: Joy, who uses the car on a regular basis meets with an accident which results in damages not only to his car, but also to the car of another individual. Joy is aware that the car has insurance, which makes him feel confident about the whole process. He assures the other party involved in the accident that the insurance company will pay for the expenses. Joy then approaches the insurer, armed with a copy of the comprehensive car insurance policy. 

However, he is in for a shock. The insurance company refuses to entertain his claim, stating that the policy is still in Rohan’s name. Failing to transfer the policy in his name has resulted in the policy becoming void, which essentially means that Joy will have to shell out the money for the damages incurred from his own pocket. Ouch! A costly proposition indeed. 

Situation 2: Rohan, who has moved on and purchased a brand new SUV has left all thoughts of his old car behind him. However, on one bright Monday he receives a call from the insurance company stating that his car has been involved in an accident with another car and that he is expected to meet company officials immediately. Now, Rohan knows that his new car hasn’t been in any accident and tries to justify this with the insurer, but the insurance agent states that the car involved in the accident was his old car, which he had sold. Given that the insurance policy wasn’t transferred, the liability still falls on his head and he is expected to pay a certain amount towards settling the claim.

Additionally, he also realises that he is not eligible for a No Claim Bonus, which could have saved him a tremendous amount when buying a new policy.

These two instances highlight why Rohan and Joy should have transferred the insurance policy once the sale was completed. Failing to do so put them through some tough moments, which could’ve easily been avoided.

For most Indians a car is not just a means of transportation, it is their dream. While it has become easier to realise this dream, failing to transfer the insurance policy could turn it into a nightmare.