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Hypothecation in Car Insurance

Written by Sumit Arora
Updated On Oct 22, 20232 min read

What Is Hypothecation In Car Insurance?

Car insurance is a legal contract that is intended to give financial security against unanticipated collisions, theft, and damage. It is signed by the owner of the car and the insurance company. In India, the Motor Vehicles Act of 1988 mandates that drivers have at least a third-party liability policy. The insurance lessens the potential financial risks and responsibilities that result from mishaps or accidents involving your car.


Third-Party Liability Insurance and Comprehensive Insurance are the two main categories of car insurance. Third-party insurance covers liabilities for damages to a third party; on the other hand, Comprehensive Insurance offers comprehensive coverage that includes personal accident coverage, third-party liabilities, and vehicle damage.


It is essential to comprehend the intricacies of your insurance policy, including elements such as hypothecation, in order to make sound financial decisions and comply with legal obligations.

Hypothecation in Car Insurance

What Does Car Insurance Hypothecation Mean?


"Hypothecation" is the process of pledging an asset—in this case, a car—as collateral to get a loan. When someone takes out a loan to buy an automobile, the vehicle is pledged as security until the loan balance is paid off in full.

How It Operates:

Even if you become the vehicle's owner and primary policyholder, the lending institution—such as a bank or other financial institution—holds an interest in the vehicle when you take out a loan to purchase a car.

The name of the financier or lender will be mentioned in the insurance policy as the "hypothecatee," and the borrower as the "hypothecator."


In the event of a claim, the hypothecated will get the majority of the claim amount, protecting the lender's financial interest.

Loan Repayment: 

Upon complete loan repayment, the owner will have all ownership of the vehicle, and the hypothecation status will need to be removed from the insurance policy and registration certificate.

Claims Procedure: 

Since both the lender and the owner have an interest in the settlement amount, there may be extra phases in the claims procedure for a hypothecated car.

No Objection Certificate (NOC): 

In order to have the hypothecation removed from the insurance policy and car registration certificate, the borrower must receive an NOC from the lender on loan payback.

How to Add Hypothecation to My Car Policy?

Adding hypothecation to your car insurance policy is a straightforward process. When your vehicle is financed through a loan, the lending institution becomes the hypothecatee while you, the vehicle owner, are the hypothecator. Here's a step-by-step guide to ease the process:

Step-by-Step Process:

Inform the Insurer at Purchase: When purchasing your car insurance policy, inform your insurance provider about the vehicle loan. You will need to provide the details of the lending institution so they can be added as the hypothecatee in your policy.

  1. Submit Necessary Documents: Provide the required documents that prove the existence of the loan and the details of the lending institution. The insurance company will verify these documents before adding hypothecation to your policy.
  2. Verification & Approval: Once the verification process is completed successfully, your insurer will add hypothecation to your policy. The policy document will mention the hypothecation details clearly.
  3. Review Policy Document: After receiving your policy document, review it meticulously to ensure that hypothecation has been added correctly, with accurate details of the lender.

Documents Required for Vehicle Hypothecation

When adding hypothecation to your car insurance policy, you'll be required to submit specific documents that substantiate the existence and details of the vehicle loan. Having these documents ready can expedite the process:

List of Documents:

  1. Loan Sanction Letter: The official letter from the lender that confirms the sanction of your vehicle loan. This document contains critical information like the loan amount, tenure, interest rate, and terms and conditions.
  2. Agreement of Hypothecation: This is a signed agreement between you and the lender, detailing the hypothecation terms. It outlines the rights and responsibilities of both parties involved.
  3. Vehicle Registration Certificate (RC): A copy of your RC is required, which contains essential details about your vehicle.
  4. Personal Identification Proof: Valid ID proof like Aadhar Card, PAN Card, or Passport is necessary for identity verification purposes.
  5. Address Proof: Documents like utility bills, Aadhar Card, or Passport can serve as proof of your current address.

Document Verification:

Upon submission, the insurance provider will conduct a thorough verification of the documents. Once they are satisfied with the authenticity and accuracy of the provided information, hypothecation will be added to your car insurance policy.

How To Remove Hypothecation from Car Insurance Policy?

Once you have successfully repaid your vehicle loan, it is crucial to remove the hypothecation from your car insurance policy. Doing so ensures that there are no complications when you need to make a claim, and the process is fairly straightforward.

Step-by-Step Guide to Hypothecation Removal Offline

Wondering how to cancel the hypothecation of a car? Here are the steps you need to follow: 

  1. Obtain NOC from the Lender: The first step involves obtaining a No Objection Certificate (NOC) from your lender, which is the bank or financial institution from which you’ve taken the loan. The NOC certifies that you have cleared all dues and that the lender has no objection to the termination of the hypothecation agreement.
  2. Apply for Hypothecation Termination at RTO: With the NOC in hand, approach the Regional Transport Office (RTO) where your vehicle is registered. You would need to fill out Form 35, which is an application for the termination of hypothecation. Submit this form along with the NOC and a copy of your vehicle’s Registration Certificate (RC).
  3. RTO Process and Updated RC: The RTO will process your application and, upon approval, issue an updated RC that doesn’t bear the hypothecation details. This process may take a few weeks.
  4. Notify Your Insurance Provider: Once you receive the updated RC, inform your car insurance provider about the termination of hypothecation. Share a copy of the new RC and the NOC from your lender.
  5. Submit Required Documents to Insurer: In addition to the NOC and updated RC, you might need to submit a request letter for the removal of hypothecation. Check with your insurer for any other specific documents they might require.
  6. Verification and Policy Endorsement: The insurance company will verify the documents and process your request. Following this, they will issue an endorsement to your policy, effectively removing the hypothecation. Ensure to review your updated policy document to confirm that the hypothecation details have been duly removed.

Car hypothecation removal online

  1. Visit Parivahan Portal: Go to the official Parivahan Sewa website of the Ministry of Road Transport and Highways.
  2. Select Appropriate Service: Under the “Online Services” tab, you might find options related to vehicle services, including hypothecation termination or related services.
  3. Enter Vehicle Details: Input the required details, typically your vehicle’s registration number and other necessary information.
  4. Upload Documents:
  • Digitally upload the necessary documents:
  • NOC from the lender.
  • Form 35 duly signed by the financier and yourself.
  • Other relevant documents if prompted.
  1. Pay Fees Online: If there is a fee associated with the hypothecation removal process, you should be able to pay it online through the portal.
  2. Submit the Application: After uploading the documents and paying the fees, submit your application.
  3. Receive Confirmation & Acknowledgment: You should receive a confirmation along with an acknowledgement receipt or number for your application.
  4. Tracking & Follow-Up: Use your acknowledgement number to track the status of your application online.
  5. Receive Updated RC: Once approved, you may either receive the updated RC by post, or you might need to download it digitally, depending on the available services.

Points to Consider:

  1. Ensure that scanned copies of your documents are clear and readable.
  2. Each jurisdiction may have slightly different requirements and processes, so follow the specific instructions provided on the portal.
  3. You may need to create an account on the Parivahan portal or the specific portal of your state’s transport department to access online services.
  4. Be proactive in initiating the hypothecation removal process as soon as you repay the vehicle loan.
  5. Ensure all submitted documents are accurate and genuine to avoid any delays or issues.
  6. Keep a copy of all documents and acknowledgements received during the process for future reference.

How to Check Hypothecation Cancellation/Removal Status?

After initiating the hypothecation removal process, it is essential to track the status to ensure that everything is proceeding smoothly. Here’s a guide to help you understand how to check the hypothecation status of a vehicle online:

Steps to Check Hypothecation Cancellation Status:

  1. Visit the Parivahan Portal: The official Parivahan website of the Ministry of Road Transport and Highways is your go-to platform for all RTO-related services, including hypothecation status checks.
  2. Navigate to Online Services: Under the “Online Services” tab, select “Know your vehicle details”.
  3. Enter Vehicle Details: Input your vehicle’s registration number and provide the required verification (usually a captcha code).
  4. Review Vehicle Status: The system will display all details associated with the entered vehicle registration number, including the status of hypothecation. If hypothecation removal has been processed, it should be reflected in this section.

Things to Consider:

  1. Ensure you have the correct and complete vehicle registration number.
  2. The online system is updated regularly, but there may be a slight delay in reflecting recent changes. If you don’t see the updated status immediately, consider waiting a few days before checking again.

The Process to Receive Smart Card RC

Upon successful car hypothecation removal, you need to receive your updated Registration Certificate (RC). Nowadays, RCs are often issued as Smart Cards. Below is the process to receive your Smart Card RC:

Steps to Obtain Smart Card RC:

  1. Submission of Documents: Once hypothecation is removed, submit the necessary documents (Form 35, NOC, and old RC) to the RTO.
  2. Payment of Fees: There might be a nominal fee for the issuance of a new Smart Card RC. Pay the requisite fee at the RTO.
  3. Verification Process: The RTO will verify the submitted documents and process your application for a new Smart Card RC.
  4. Receipt of Smart Card RC: After successful verification and processing, the RTO will dispatch the Smart Card RC to your registered address. The time for this process can vary, so it’s advisable to inquire about the expected timeline at the RTO.

Key Points:

  1. Ensure your address in the RTO records is updated and accurate to avoid delivery issues.
  2. Safeguard the Smart Card RC as it is a crucial document proving your ownership of the vehicle.
  3. If there’s a delay in receiving the Smart Card RC, follow up with the RTO to check the status of your application.

Is it Important to Remove the Hypothecation of a Car?

Absolutely! The removal of hypothecation from your vehicle's documents is a crucial administrative step that holds significant importance for a multitude of reasons:

Why Hypothecation Removal is Essential:

  1. Clear Title of Ownership: With the hypothecation removed, you have a clear title of the vehicle, meaning there are no outstanding claims or liens against it. This clear ownership is vital, especially if you plan to sell the vehicle in the future.
  2. Hassle-Free Claim Settlement: In the case of an insurance claim, the process is much smoother and straightforward without the involvement of a third-party financier. The claim amount is directly settled between you and the insurance company without any complications.
  3. Legal Compliance: It’s a legal requirement to have the hypothecation removed from your vehicle's registration certificate once the loan is paid off. Failure to do so can lead to legal complications and issues during transactions involving the vehicle.
  4. Peace of Mind: Knowing that you have completed all legal and financial formalities related to your vehicle loan brings a sense of closure and peace of mind, allowing you to enjoy your vehicle's ownership fully.

Final Thoughts 

Navigating through the intricate web of hypothecation in car insurance might seem like a daunting task initially. However, with a comprehensive understanding and systematic approach, it is manageable and imperative. From understanding the basic concept of hypothecation to diligently adding or removing it from your car insurance policy, each step is crucial in safeguarding your financial and legal interests as a vehicle owner in India.

Removing hypothecation is not just a legal formality; it is a necessary process that every responsible vehicle owner must undertake upon the completion of their auto loan repayment. It ensures a clear title, smooth claim settlements, and compliance with legal standards, setting the stage for worry-free vehicle ownership.


  1. What exactly is hypothecation in the context of car insurance?

  Hypothecation is a financial arrangement where your vehicle is pledged as collateral for a loan, but you still retain ownership. In car insurance, it means your insurance policy acknowledges the lender’s interest in the vehicle until the loan is fully repaid.

  1. Is it mandatory to remove hypothecation from car insurance and registration documents?

 Yes, it's essential to remove hypothecation from your documents once the loan is fully repaid to avoid legal complications and ensure smooth claim settlements in the future.

  1. How do I add hypothecation to my car insurance policy?

   When purchasing your policy, inform the insurer about the vehicle loan, provide the lender's details, submit necessary documents, and the insurer will add hypothecation after verification and approval.

  1. What documents are required for adding hypothecation to a car insurance policy?

   Typically, you need the loan sanction letter, hypothecation agreement, a copy of the vehicle's Registration Certificate (RC), valid ID proof, and address proof.

  1. How can I check the status of hypothecation removal?

   You can check the hypothecation removal status online through the official Parivahan website by entering your vehicle’s registration number and verifying your vehicle details.

  1. Where do I apply for hypothecation removal?

   The application for hypothecation removal is submitted to the Regional Transport Office (RTO) where your vehicle is registered.

  1. What documents are needed for hypothecation removal?

   You need the No Objection Certificate (NOC) from the lender, Form 35, and the existing RC, among potentially other documents as required by your RTO.

  1. After hypothecation removal, will my insurance premium be affected?

  Hypothecation removal does not directly impact your insurance premium. Premiums are based on other factors like the vehicle's age, make, model, and your driving history.

  1. How long does it take to remove hypothecation from car documents?

   The process timeline can vary, but it usually takes a few weeks from the submission of documents to the receipt of an updated RC without hypothecation details.

  1. What if I do not remove hypothecation from my vehicle's documents after repaying the loan?

   Failing to remove hypothecation can lead to complications during insurance claim settlements, legal issues, and problems if you decide to sell the vehicle in the future. It’s crucial to remove hypothecation to have clear ownership of the vehicle.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard. 


This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
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Written by Sumit Arora
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 Sumit is an insurance industry veteran with more than 20 years in the industry. Sumit is a frequent columnist and speaker at major insurer conventions and is a heard name in insurance circles In his free time, Sumit likes to spend time with his family and go on trips

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