• Wed. Sep 21st, 2022

Does scrapping your car affect your car insurance policy?

ByElla E. Kidwell

Mar 25, 2022

Does scrapping your car affect your auto insurance policy?

The scrapping of a car usually has a huge impact on the car insurance policy. Before going into details, let’s see what scrapping a car means.

A badly damaged and irreparable car is scrapped. In this case, the car is in its most damaged state and it is valued only for its weight in materials like iron, rubber, glass, etc. This is often referred to as scrap value. Scrapping old cars has become a mandatory mandate in India.

Here are the reasons why it is important to scrap a car:

  1. Driving an old car over 15 years old can be dangerous for the driver and prone to accidents.
  2. Old cars have contributed a lot of pollution and carbon emissions which are very harmful to the environment.
  3. A heavily damaged car will only increase landfills with such abandoned vehicles. However, its disposal would mean that its parts would be recycled responsibly.
  4. Vehicle owners will benefit from tax advantages to encourage them to scrap an old car.

How does scrapping your car affect your auto insurance policy?

If you drive an old car and wonder how scrapping works. Here are some pointers.

  1. The automobile law of our country states that the service life of a personal car is 20 years, and that of a commercial vehicle is 15 years. A suitability test must be done for a 15-year-old car to check whether its life can be extended by 5 years.
  1. A Scrap test will have old cars and must pass a mandatory fitness test. Vehicles that pass the test can be re-registered and the rest will go through the scrapping process. A vehicle that fails the test will be considered unregistered.
  1. Driving an old and unfit car is always dangerous, which increases the liability of the car insurance provider for which they charge a higher premium. But, once your car is scrapped, you don’t have to pay any premium for your car insurance plan.
  1. If the costs of repairing your damaged car are too high, the car insurance company may offer you an offer to buy the car. But, if your car is scrapped, the car insurance company will pay you the value of the car in addition to the amount they receive from the scrap. So, scrapping your car will help you get a higher claim from your insurer.
  1. Once your car is scrapped, you will need to cancel its registration certificate. You will also need to inform your insurer when scrapping your car. The insurer will cancel the insurance policy for your vehicle since it will no longer be registered for circulation on public roads. The cancellation of the registration certificate and the insurance plan helps to prevent theft and abuse.
  2. Another point to remember is that older, unfit cars contribute to the insurer’s higher incurred loss ratio (ICR). The incurred claims ratio is the ratio between the total value of claims paid and the total value of premiums received during the year. With the scrapping of unfit cars, the ICR should also decrease.

This is a joint publication.

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