Hypothecation is the practice of pledging your car to the bank until the loan amount is paid in full. 

In this guide, we will discuss hypothecation in car insurance and how it impacts your car insurance decisions. 

What is Hypothecation in Car Insurance?

Hypothecation in car insurance is an arrangement where the purchased car is pledged to the lending bank as collateral against the loan. 

When you buy a car through a bank loan, the vehicle is registered in your name at the local RTO, and the registration certificate also has your name even though the bank finances it. 

Similarly, the hypothecation meaning in car insurance is that the ownership of the car will remain with the lending bank until you fully pay off the total loan amount and interest charges. Thus, the insurance company will note this on the policy document until the loan is cleared.

Once you clear the loan amount, this note from the insurance policy is also removed for future claims via a straightforward process.

How To Add Hypothecation in Car Insurance​​?

List of Documents Required for Car Insurance Hypothecation

• Original RC

• Form 34

• Valid car insurance

• Address proof of car owner

• Pollution Under Control Certificate

• Receipt of the fee paid for the endorsement of hypothecation by the RTO

• ​Attested copy of PAN card

Process to Add Hypothecation in Car Insurance

In most cases, insurers add hypothecation to car insurance automatically when you submit your vehicle registration certificate and loan documents at the time of policy purchase. 

However, if it does not reflect on your policy documents, you can add hypothecation in car insurance by following the simple process mentioned below - 

• Update the insurer regarding the need to add hypothecation.

• Submit all the necessary documents listed above.

• Get your car insurance policy endorsed with hypothecation.

• Collect the policy document from the insurer. 

How to Remove Hypothecation in Car Insurance?

List of Documents Required to Remove Car Insurance Hypothecation

• The original and a clear copy of the No Objection Certificate (NOC) from the lending bank stating that the loan has been cleared.

• Car’s registration certificate

• Copy of car insurance policy 

• Form 35

Process to Remove Hypothecation in Car Insurance

Once the bank loan is fully paid, you must remove the hypothecation from your car. It is an administrative process involving the lending bank and the Regional Transport Office, and this is what you need to do. 

• First, you must submit the documents mentioned above in person to the RTO to have the hypothecation removed from your car’s registration certificate.

• To complete the process, you must submit the documents and pay the removal fee at the RTO. 

• Once done, you must submit the NOC from the bank to the insurer.

• The insurer will review the NOC, and upon confirmation, hypothecation will be removed from your insurance document.

Why to Remove Hypothecation in Car Insurance?

It is crucial to remove hypothecation in car insurance and other car documents for multiple reasons. Let us discuss some of the top benefits below - 

Complete Car Ownership

One of the most significant benefits of removing hypothecation from your car documents, including your car insurance policy, as soon as you pay off the loan amount is having complete car ownership. This is because once you remove hypothecation in car insurance, the lending bank is no longer eligible to have part ownership of your vehicle.  

Competitive Premiums

In some cases, insurers also offer lower premiums at the time of renewal after the removal of hypothecation from your car insurance document and car registration certificate. However, remember that this varies from insurer to insurer, so always check with your insurance provider for any such benefit. 

 Higher Flexibility

With hypothecation stamped on your car insurance document, you may only be able to switch insurers once it is removed. However, as soon as you remove car insurance hypothecation, you have complete flexibility to change insurers based on whose policy inclusions and terms are best aligned with your needs. 

Get Smart Card RC After Hypothecation Removal

The RTO will generate a new RC on the cancellation of hypothecation. During this process, you can apply for the smart card at the RTO by paying the applicable fee to confirm complete ownership of your car. This process can also be done when you renew your car insurance. ​

Conclusion

Car ownership is a significant achievement. However, it is very common to seek financial support from banks to fulfil one's car purchase dreams. Thus, understanding hypothecation in car insurance and its overall meaning is necessary to comply with the mandates. 

Hypothecation is indicated on all main car documents, including the car insurance policy, and thus, removing it as soon as possible is important to benefit from complete car ownership. 

To drive any car in India, having third-party car insurance is mandatory, but it only protects the insured from third-party liabilities. For your car protection, there are many other types of car insurance policies available. 

Reliance General Insurance offers a comprehensive car insurance policy and other car insurance plans to extend maximum financial support in case your car meets with an accident. Moreover, we provide an additional cover of ₹15 lakhs for personal accidents and a wide range of add-ons for ample customisation flexibility.

Frequently Asked Questions

1.Can hypothecation be removed online?

Removing hypothecation from important car documents like RC cannot be done online as it requires physical submission of the necessary documents at the RTO. However, you can check with your car insurance provider to see if they offer an online process for submitting the lending bank’s NOC to remove hypothecation in car insurance. 

2. What are some exclusions in a comprehensive car insurance policy?

Some common exclusions in a comprehensive car insurance policy include - 

• Regular car wear and tear maintenance

• Replacement or repair expenses incurred due to mechanical failures 

• Damages incurred due to negligent driving under the influence of alcohol or any other substance 

• Damages incurred due to voluntary participation in high-risk road activities, such as speed racing

• Damages incurred due to war, terrorist attacks, riots, etc.  

3.Can I just buy an own-damage car insurance policy?

In India, third-party car insurance is mandatory, and failure to comply can result in hefty fines. Thus, even if you only plan on buying an own-damage car insurance plan, you will still need to invest in third-party car insurance. 

However, you can purchase a comprehensive plan to receive financial coverage for both third-party and own damage expenses. ​​