What is hypothecation in car insurance? (Simply explained)

So, you want to know what is hypothecation in car insurance? Great! Learn about the concept of hypothecation using simple and easy-to-understand examples. This article will discuss the following important points:

• What is hypothecation?
• Examples of hypothecation
• How to add hypothecation to your policy?
• How to remove hypothecation from your car insurance policy?

What is hypothecation?

Have you ever bought a vehicle on a bank loan? If you have, then your vehicle has been hypothecated. What does that mean? It basically means that even though your name will come on the motor insurance policy under the ‘insured’ section, the ownership of the vehicle remains with the bank. It will also be mentioned on your car insurance policy that your vehicle has been hypothecated (and the name of the bank).

Examples of hypothecation

Let us understand the concept of hypothecation with a simple and easy-to-understand example. Let us assume that Mr. Shankar bought a new Honda City on loan. As the car is on loan, the RTO will make a note on their part that the vehicle is still not fully paid for and is hypothecated. The ownership of the car will remain with the bank. Once Mr. Shankar pays off the loan, he can remove this hypothecation from his RC book and car insurance policy.

How to add hypothecation to your policy?

You will have to furnish your vehicle financing details to the motor insurance company before purchasing the insurance policy. An RC book copy mentions the financier’s name and will usually suffice. Once the insurance company sees that your vehicle is still not fully paid for, it will mention that this car is hypothecated under the name of your bank.

How to remove hypothecation from your car insurance policy?

You can also remove your car hypothecation once you have paid off the bank loan. Let us understand this process:

Repay your car loan: First, you will have to completely repay your car loan.

Get NOC from the bank: Once your loan is repaid, the bank will provide you with a No Objection Certificate.

Submit documents to the RTO: The following documents will now need to be submitted to the RTO:

• NOC from financier or bank
• Duly filled Form 35 (this is a form that cancels the hypothecation)
• PUC and current insurance policy copy
• Pay RTO fees and initiate hypothecation removal: After you submit the above documents, you will have to pay the requisite RTO charges and initiate the removal.