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Selling or replacing your car: insurance transfer, NCB reserving letter and new-car NCB

How motor insurance transfers to a buyer under section 157, why the NCB stays with the seller, how to get an NCB reserving letter and use it on a new car, with worked figures.

Updated · 5 min read

Selling or replacing your car: insurance transfer, NCB reserving letter and new-car NCB

When you sell a car in India, the insurance can pass to the buyer, but your No Claim Bonus stays with you. Under section 157 of the Motor Vehicles Act, 1988, the third-party cover is deemed transferred to the new owner from the date of transfer, and the buyer must apply to the insurer within 14 days to have the policy changed into their name; the own-damage section needs an endorsement. At that point the insurer recovers the NCB discount for the rest of the term from the buyer, and you can ask for an NCB reserving letter (also called an NCB certificate) to use the discount on your next car, usually within a period such as three years. If you are replacing a car, plan the sale and the new purchase so neither car is uninsured and the NCB is not wasted.

This guide is part of the car insurance renewal checklist. The NCB rules themselves are in NCB slabs and the 90-day rule.

Two separate transfers

What movesTo whomHow
Ownership (RC)BuyerForms 29 and 30 to the RTO, through Vahan on Parivahan
Insurance policyBuyerBuyer applies to the insurer within 14 days with RC transfer proof; endorsement issued
NCBStays with sellerSeller requests an NCB reserving letter; buyer pays the NCB difference
HypothecationLender releasesLoan closure, Form 35 and NOC before transfer

Until the RC transfer completes, the seller remains the registered owner and can be pulled into a third-party case involving the car. Complete the RTO transfer promptly and keep a dated delivery note signed by the buyer.

Worked example: selling mid-term

Illustrative. You sell your car on 1 March. Policy runs 1 October to 30 September, NCB 45%, basic OD premium ₹14,000, so the NCB discount for the year is ₹6,300.

  • Policy months remaining: 7 of 12.
  • Insurers usually recover the NCB for the unexpired period from the buyer when the policy is endorsed: roughly ₹6,300 × 7/12 = ₹3,675, plus GST, though the exact method (pro rata or short-period scale) depends on the insurer.
  • You request an NCB reserving letter showing 45% NCB earned up to the date of sale.

Alternative: instead of transferring, you can cancel your policy after the RC is transferred, and the buyer buys a new policy from the date of transfer. The refund on cancellation is usually calculated on a short-period scale, not pro rata, and the buyer must not have even one day without cover. Transfer is generally simpler for the buyer.

Using NCB on a new car

  1. Get the NCB reserving letter, or keep the old policy and proof of sale (delivery note, Form 29/30).
  2. When you insure the new car, give the letter to the dealer or insurer. The OD premium for the new car is discounted at the earned NCB.
  3. The new car must be of the same class (car to car). Ownership must be the same person.

Illustrative. New car OD premium before NCB: ₹28,000. With 45% NCB transferred: discount ₹12,600. Net OD ₹15,400. Over a new car's first year, that is ₹12,600 + 18% GST = ₹14,868 saved.

Many owners lose this by letting the dealer issue the first-year policy without asking about NCB. Mention it before the policy is issued; a later endorsement may not be possible.

Selling a car and keeping your old NCB "for later"

If you sell your car and do not buy another immediately, the reserving letter preserves NCB for a period stated by the insurer, often up to three years from expiry of the old policy or from sale. Check the period on the letter.

Buying a used car: the buyer's checklist

  • Check the existing insurance details on the RC record via Parivahan, and ask the seller for the policy PDF.
  • Make sure the insurer endorses the policy into your name within 14 days of the RC transfer; until then, an OD claim can be disputed.
  • Expect to pay back the seller's NCB for the remaining term, or buy a new policy from the date of transfer.
  • Inspect the car for undisclosed damage: an insurer will not pay for damage that existed before cover.
  • If the seller had a CNG kit fitted, check it is endorsed on the RC and the policy.

Inheritance and death of the owner

If the owner dies, the vehicle passes to the legal heir under the RTO rules for transfer on death, and the policy continues for the remaining period. The legal heir should inform the insurer and arrange an endorsement. NCB earned by the deceased owner can usually pass to the legal heir who takes over the vehicle; insurers ask for the death certificate and proof of succession.

Mistakes to avoid

  • Handing over the car before the RC and insurance are changed, and then being named in an accident case.
  • Leaving the NCB on the sold car.
  • Buying a used car and driving it for weeks on the seller's policy without endorsement.
  • Cancelling the old policy before the buyer has their own cover.

Frequently asked questions

Can I transfer NCB from a two-wheeler to a car?

No. NCB moves between vehicles of the same class only.

Can my spouse use my NCB on a car in her or his name?

Generally no, because NCB belongs to the named insured. An exception is transfer to the legal heir on death.

What if the buyer never transfers the insurance?

The policy remains in your name, and an OD claim by the buyer can be refused because they have no insurable interest under your policy. Complete both RC and insurance transfers.

Does the NCB reserving letter expire?

It is valid for the period stated by the insurer, commonly up to three years. After that, the NCB is lost.

Sources

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