Impact of Car Scrapping on Car Insurance Policies
Wear and tear, depreciation and loss are a part of any car’s life. Cars are designed to provide comfort and convenience by helping you travel from one place to another without any issues. However, an old car will probably create more problems than comfort.
As a car owner, you need protection from emergencies and accidents that involve your car. This is why you compare car insurance and purchase the best policy you can. But what happens when your car becomes a problem?
Let us understand how your car insurance policy reacts to a scrapped car and what the right thing to do is!
Scrapped Car
A car that is really damaged and beyond repair is called a scrapped car. The market value of this car is depleted to the point where it can only be valued for the weight of its material. This means scrap car prices are not valued beyond components like metal, glass, iron, rubber, etc.
When your car reaches this point, it is deemed right to scrap it by recycling, dismantling or scrapping it in any other way possible.
Vehicle Scrappage Policy
The vehicle scrappage policy is a government initiative in India that funds the scrapping of old, unfit and damaged cars by replacing them with modern, new vehicles.
According to this programme, a car is outdated after 15 years of age. Every car over 15 years of age must undergo a thorough evaluation and assessment by the RTO to get a fitness certificate.
If a car passes this test, the vehicle will get an extended 5 years of fitness certificate and validity. But if a car fails to pass the fitness test, the car is supposed to be scrapped. This programme demands such drastic steps because a damaged car can cause damage in many ways, like pollution, breakdown, brake failure, sudden damage and accidents.
Car Scrapping and Its Impact on a Car Insurance Policy
Your own damage or comprehensive car insurance protects you from unforeseen emergencies and accidents. However, with a damaged car, policyholders ought to raise a claim, becoming a liability for car insurance companies. Car scrapping can impact your car insurance policy in many ways.
1. Market Value
Car scrapping affects the market value of your vehicle. Since your vehicle’s operations and functions are broken down, it’s no longer considered a “car/vehicle” but as scrap car parts. These parts can be copper, metal, rubber, glass, plastic, aluminium or other materials used to manufacture a new car.
2. Premium
When a car reaches the stage of life where it is considered scrap, the insurance company observes an increase in risk associated with the vehicle. An increase in the risk factor of a vehicle leads to an increased policy premium. When you scrap your car, the premium will significantly decrease. Hence, car scrapping is a wise decision.
3. Insured Declared Value (IDV)
The manufacturing cost of your car is significantly reduced, which leads to a decreased insured declared value. This will, in turn, reduce the premium of your car insurance policy. Without the help of your scrap car insurance, you might have to face an increased premium due to high IDV.
4. Incurred Claim Ratio (ICR)
The incurred claim ratio refers to the ratio of total claims settled to the total premium received during a financial year. Car scrapping decreases the incurred claim ratio significantly.
Cancelling Car Insurance Before Car Scrapping
It is not mandatory to cancel your car insurance before you scrap your car. However, according to the laws pertaining to motors in India, it is mandatory to cancel your Registration Certificate (RC).
Cancelling the RC of scrapped cars helps the regional transport office keep a record of all the vehicles that any Indian citizen is no longer using. Cancelling your RC directly translates to a conclusion that means your car is unusable and unfit.
You must cancel your car insurance to prevent the misuse or theft of policy documents. Providers like TATA AIG also offer refunds on a pro-rata basis for their cancelled policies.
Conclusion
Your car is an important part of your life. If you want to do right by this asset, car scrapping is necessary. Scrap car insurance has made it possible to save a significant amount of money on premiums and benefit in other ways as well.
Hence, ensure you follow the right regulatory processes when it comes to the cancellation of your car registration and car insurance.
