What about motor insurance claims if there is hypothecation on your vehicle? A car loan or two-wheeler loan is a secured loan. In this case lender pay the fund to purchase the vehicle. That’s why the vehicle is hypothecated by the bank or financial institution from where you take the loan.
Because technically the bank is the owner of the vehicle. Once you repay the loan the ownership transfer to you completely.
In other secured loans like property loans etc bank keep the property’s original papers. When you repay the loan, you get back the original papers. But in case of a car loan or any other vehicle loan, the lender name appears on the RC. Because the lender has hypothecated the vehicle.
Motor Insurance Claim if There is an Outstanding of the Loan
What about your motor insurance claim if there is an outstanding of the loan? Vehicle hypothecation is a must if your vehicle is on loan. In case of total loss or theft of the vehicle, your insurance company will pay the claim settlement amount in the favour of lender.
Your lender will deduct the outstanding loan amount and other charges if any. After that lender will remit the balance amount to you.
This is because you purchase your motor insurance policy with an inclusive hypothecation clause. In this clause you agree for these terms and conditions.
If you don’t have any outstanding loan on your vehicle then do the endorsement as soon as possible. It will be helpful to you to get the claim settlement in your favor.
How to Remove Hypothecation from the RC?
You can terminate or remove the hypothecation from RC on full repayment of the loan. Normally following are the steps to process it:
- Repayment of the loan amount
- Collect No objection certificate from your lender
- Submit No Objection certificate along with other required documents to RTO (Regional transport office). You have to submit NOC – Pan Card, Address Proof, Form- 35, RC, Pollution Certificate, etc.
- Collect your updated RC from RTO
How to Remove Hypothecation from Motor Insurance Policy?
After repayment of the loan to the lender, you get a No Objection Certificate or No Dues certificate. This No objection Certificate states that the lender does not have any objection for removal of the hypothecation from the RC.
After getting the NOC, you apply for the endorsement of the policy. Submit a request letter and documents to your insurance company to remove the hypothecation. You may need to submit the following documents- Registration Certificate copy, Insurance Policy copy, No Objection Certificate, etc.