How Does Car Scrapping Affect Insurance Policy?
How Does Car Scrapping Affect Insurance Policy?
![Car Scrapping Car Scrapping](/images/default-source/car-insurance/car-scrapping.jpg)
Scrapping your vehicle impacts your car insurance policy to a significant extent. But before we get into the details, first we need to understand what scrapping your car stands for. What is a scrapped car?
If your car is severely damaged, it goes beyond repair. Under such circumstances, when the car gets most damaged it gets valued only for its weight for materials like iron, glass, rubber, etc. which is technically termed the scrap value. Scrapping of old vehicles has become a compulsory mandate in our country.
Does scrapping your car impact your insurance policy?
Yes, of course, scrapping your vehicle greatly impacts your car’s insurance policy. If you are driving an age-old car, then it is extremely essential to understand how it will impact your existing car insurance policy.
● The motor law in India states that the lifespan of any personal vehicle is 20 years and that of any commercial vehicle is 15 years. A compulsory fitness test needs to be done for any 15-year-old car for checking if its lifespan can be further extended by another 5 years or not.
● A scrap test will need old cars to undergo a compulsory fitness test. Any car that passes this fitness test can be re-registered and those who cannot pass it go into scrapping, and such cars stand unregistered.
● Driving an unfit, old car is always dangerous which enhances the liability of the motor insurance provider that charges an enhanced premium amount. But, once your vehicle gets scrapped, you require not tohave to pay any premium for your car insurance policy.
● If the repairing costs of your damaged car get too high, the concerned insurance company may extend you a special offer to buy the car from you. But, if that vehicle gets scrapped, the insurance company will clear all the dues for the value of your car apart from the amount you receive from the junkyard. Therefore, scrapping your car will help you to receive an enhanced claim from your chosen insurer.
● Once your vehicle gets scrapped, you must cancel the registration certificate. You must inform your insurer about your scrapping. The insurer will automatically cancel your vehicle’s insurance policy as the registration of a scrapped vehicle stands cancelled and become unfit for legalized usage on public roads. Cancellation of the insurance plan and the registration certificate helps in the effective prevention of mishandling and theft.
● Another aspect that you must remember is that unfit and old cars contribute to an inflated Incurred Claim Ratio of the concerned insurer. ICR is the ratio of the total value of the claims settled vs. the total value of the premiums received during a particular financial year. With the scrapping of old vehicles, the calculated ICR is also expected to decrease.
● Car manufacturers will gain access to several industrial materials like copper, aluminium, steel, plastic, rubber, plastic, etc. from unfit car scrappage. With proper access to low-cost manufacturing materials, the manufacturers can reduce the total manufacturing cost of cars.
● With the reduction in the new car prices, the insurance cost may reduce as the IDV, the approximate market value of the car determines the premium.
● Despite all the regulations implemented on the third party car insurance premium, the third-party claims are considered higher than own damage car insurance claims, as unfit vehicles are considered dangerous on roads and are considered a significant contributor to enhanced third-party claims. With the introduction and implementation of the scrappage policy, the third-party claims are expected to go down as all unfit cars are supposed to be scrapped.
Effects of scrapping on the claim amount of your totalled car:
A totalled car is technically termed to those cars whose repairing costs are higher than their existing market value. If you have encountered an accident and land p with a totalled car, the concerned motor insurance company might approach you to purchase the car. Under such circumstances, you are supposed to receive the IDV of the concerned vehicle. If you wish to scrap your vehicle, the coinsurance company will pay you the calculated IDV along with the price of the components from the junkyard. So, scrapping your totalled car stands more beneficial than retaining it.
Should you cancel your insurance policy before scrapping your car?
Before you inform your chosen insurer regarding the cancellation of your vehicle’s insurance policy, you must get the Registration Certificate of your car cancelled at the respective RTO and inform your insurer to cancel the car plan. In case of any refund of your care plan, it gets calculated on a pro-rata basis. However, if you have raised any claims in the current year, you will not be able to cancel the plan. Proper cancellation of the insurance plan prevents misuse of car documents and checks theft.
RTO guidelines for selling scrap cars in India:
While selling your scrapped car, you need to provide a copy of the Registration Certificate and a bank NOC to the concerned authority who will scrap your car. Before that, ensure to collect the chassis number plate, and inform the concerned RTO, following the de-registration procedure. Once all the formalities are complete at the RTO, you can sell it.
To know more, check out this article on RTO rules for car scrapping and deregistration.
Conclusion:
It has become mandatory for all 15+-year-old vehicles to undergo the scrapping process in India. Viewing from the environmental perspective, it is considered to be beneficial to scrap an old car and avoid its potentially risky usage on the road. Its impact on the car insurance policy is explained in detail here. We expect that this article is informative enough to guide you accordingly while scrapping your vehicle.
Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.
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