Selling or Buying a Used Car? How to Transfer Car Insurance and Keep Your No Claim Bonus (India 2026)
By Nitish Bharadwaj · Published Sep 28, 2026 · 7 min
When you sell a car, its insurance policy must be transferred to the buyer. Under Section 157 of the Motor Vehicles Act, the buyer should apply to the insurer within 14 days. Third-party cover moves with the car, but own-damage claims can be rejected if the policy is still in the seller's name. The No Claim Bonus belongs to the seller, who should get an NCB retention letter to use on their next car. The buyer pays back the seller's NCB discount, or buys a fresh policy instead.
You sell your five-year-old hatchback to a colleague, hand over the keys and the RC, and forget about it. Three weeks later the car is hit in a parking lot. The colleague files a claim, and the insurer points out that the policy is still in your name. The claim for the damage is rejected. This happens more often than it should, because most people assume car insurance moves with the car. Only part of it does.
What the Law Says: The 14-Day Rule
Section 157 of the Motor Vehicles Act, 1988 says that when a vehicle is transferred, the certificate of insurance and the policy are deemed to be transferred to the new owner. The new owner must apply to the insurer within 14 days of the transfer to get the details changed. This deemed transfer protects third parties, so a person injured by the car can still claim. It does not settle the own-damage part of a comprehensive policy, which is a contract between the insurer and the person named on it.
| Part of the policy | What happens on sale | Risk if not transferred |
|---|---|---|
| Third-party liability | Moves with the car under Section 157 | Buyer can face disputes and delays if the transfer is never recorded |
| Own damage (accident, theft, fire, flood) | Stays with the named policyholder until the insurer records the change | Insurer can reject the claim because the named insured no longer owns the car |
| Personal accident cover for owner-driver | Linked to the person, not the car | Buyer has no owner-driver PA cover under the seller's policy |
| No Claim Bonus | Stays with the seller | Buyer is not entitled to it and must pay it back on transfer |
No Claim Bonus Belongs to the Seller
NCB is a discount on the own-damage premium for every claim-free year, rising from 20% after one year to 50% after five. It rewards the driver's record, so it stays with the policyholder when the car is sold. Our car insurance renewal checklist has the full slab table.
If you are selling, ask your insurer for an NCB retention letter, sometimes called an NCB certificate or reserving letter, when you inform them of the sale. Insurers commonly accept it on a new policy for a car of the same class for up to three years. Keep the sale deed, Form 29 and Form 30 copies and the buyer's details ready, since the insurer will want proof that the car has changed hands.
NCB Recovery: The Charge Buyers Do Not Expect
When the buyer takes over the seller's policy, the premium on it was reduced by the seller's NCB. The buyer has not earned that discount, so the insurer recovers it, usually on a pro-rata basis for the remaining policy period. On a policy with 50% NCB and eight months left, this can run into a few thousand rupees. The buyer pays it along with a small endorsement fee.
| Step | Seller | Buyer |
|---|---|---|
| 1 | Sign Form 29 and Form 30 for the RTO transfer | File the RC transfer with the RTO |
| 2 | Inform the insurer of the sale and request an NCB retention letter | Apply to the insurer within 14 days with the new RC or RTO receipt, old policy copy and a fresh proposal form |
| 3 | Share the policy copy with the buyer | Pay the NCB recovery amount and endorsement fee; allow an inspection if the insurer asks |
| 4 | Use the NCB letter on your next car's policy | Check that the endorsed policy shows your name, address and nominee |
Transfer the Old Policy or Buy a Fresh One?
The buyer is not obliged to keep the seller's policy. They can take a new policy in their own name, and the seller can then cancel theirs and ask for a refund of the unused premium, subject to the insurer's cancellation terms. A fresh policy usually makes more sense in three cases.
- The buyer has their own NCB from a car they sold earlier. A retention letter can bring the new policy's own-damage premium down by up to 50%, which transferring the seller's policy cannot do.
- The seller's policy has less than three months left. The paperwork of a transfer is hardly worth it for a short remaining period.
- The seller's policy has a poor IDV or lacks add-ons the buyer wants. Our IDV guide explains how to set the value correctly for an older car, and whether zero depreciation is still worth paying for.
If the buyer chooses a new policy, the car must stay insured without a gap. Driving even one day without at least third-party cover is an offence, and a lapsed car usually needs a physical inspection before an own-damage policy is issued.
Common Mistakes on Both Sides
- Seller hands over the car without informing the insurer, then loses the NCB because the policy has already been endorsed to the buyer.
- Buyer assumes the RC transfer at the RTO also updates the insurance. It does not; the insurer must be told separately.
- Seller cancels the policy before the buyer has cover, leaving the car uninsured on the road.
- Buyer files a claim in the transfer window without the endorsement. Our list of car insurance claim rejection reasons shows how often ownership mismatches cause refusals.
The Bottom Line
Car insurance follows the car only for third-party liability. For everything else, the buyer should get the policy endorsed within 14 days or buy a new one. The seller should keep the No Claim Bonus by collecting a retention letter before the car leaves, and should never cancel a policy until the buyer has proof of fresh cover.
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Frequently Asked Questions
If I sell my car, does the own-damage part of my insurance automatically transfer to the buyer?
No. Only third-party liability is deemed transferred under Section 157 of the Motor Vehicles Act. The own-damage part of a comprehensive policy stays with the named policyholder until the insurer formally endorses the change, so a buyer's repair claim can be rejected before that happens.
Does the No Claim Bonus transfer to the buyer along with the car?
No. NCB rewards the driver's own claim-free record, so it stays with the seller when the car is sold. The seller should ask their insurer for an NCB retention letter, which insurers commonly accept on a new policy for a car of the same class for up to three years.
If a buyer takes over the seller's existing policy, do they get the seller's NCB discount for free?
No. The buyer hasn't earned that discount, so the insurer recovers it, usually on a pro-rata basis for the remaining policy period, along with a small endorsement fee — this can run into a few thousand rupees on a policy with 50% NCB and several months left.
How long does a car buyer have to get the insurance policy transferred into their name?
14 days from the date of transfer, under Section 157 of the Motor Vehicles Act. The buyer must apply to the insurer within this window with the new RC or RTO receipt, the old policy copy, and a fresh proposal form to get the own-damage cover properly endorsed.