Can I insure the used car under the lender’s name during the loan tenure?

When you obtain a loan for a pre-owned car, you will typically receive the insurance policy in your name as the registered owner. The lender’s interest is formally secured by a process called hypothecation, which means that, in terms of your car, the lender is listed as a hypothecated party or beneficiary in both your car’s registration certificate (RC) as well as the insurance policy.

Throughout the loan, you remain responsible for the insurance policy and ensuring its currency. The lender will usually require, at minimum, a comprehensive insurance policy rather than third-party cover that is required by law. It protects the lender’s financial interest in the event of an accident, theft or total loss of the vehicle. If there is a claim while the loan is still active, the claim will first be used to satisfy whatever loan amount is outstanding before any remaining balance is paid to you.

Lenders may also require you to provide proof of insurance at the time of renewal each year. Not keeping a valid policy in place can lead to issues including the lender arranging insurance with you paying for it. It is also important to inform your insurer of the hypothecation situation so that all of the lender's details are listed correctly in the policy documents.

Once the loan is paid in full, you can request that the hypothecation be removed from both the RC as well as the insurance policy. After that you will be the sole insured and owner of the car; the lender will not be referenced in any of the car’s documents. This is an important part of confirming ownership, as well as for dealing with any future insurance claims.