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Does Scrapping your Car Affect Insurance?

Team AckoJan 17, 2024

Old and unfit vehicles are significant contributors to the emission of greenhouse gases. They can also endanger the vehicle’s occupants. To reduce vehicular pollution and increase the safety of the passengers, the government has launched the Vehicle Scrappage Policy. Upon the car’s registration expiry and found unfit, it shall be scrapped in an environmentally friendly manner. If you own car insurance, what does this new change mean for you?


In this article, let’s deliberate the impact of the Vehicle Scrappage Policy on car insurance.



How does scrapping a car impact insurance?

As per the scrappage scheme, personal cars older than 20 years and commercial cars older than 15 years will be de-registered. Then they are tested, and those that pass can be re-registered, and those that fail need to be scrapped.

Here is how scrapping your car impacts car insurance.

  • Car manufacturers will have access to industrial materials such as aluminium, copper, steel, rubber, and plastic from the scrappage of unfit cars. With access to low-cost manufacturing materials, manufacturers can reduce the manufacturing cost of the vehicle. 

  • With a decrease in new car prices, the insurance cost may reduce since the Insured Declared Value (IDV), the car’s approximate market value, determines the premium.

  • Despite regulations on the third-party car insurance premium, third-party claims are higher than own damage insurance claims since older and unfit vehicles are dangerous on roads and seen as a significant contributor to higher third-party claims. With the introduction of the scrappage scheme, third-party claims are expected to reduce since unfit cars will be scrapped.

  • Older and unfit cars contribute to the higher Incurred Claim Ratio (ICR) of the insurer. Incurred Claim Ratio is the ratio of the total value of claims settled vs the total value of premiums received during the financial year. With the scrappage of unfit cars, the ICR is also expected to decrease.

Is there a need to cancel my insurance before I scrap my car?

Before you inform your insurer (ACKO) about the cancellation of your policy, you need to get your car’s Registration Certificate cancelled at the respective Regional Transport Office (RTO). Once it is cancelled, you need to inform ACKO of the cancellation of your car insurance policy.  In case of a refund of your policy, it will be calculated on a pro-rata basis. However, if you have raised a claim in the current policy year, you cannot cancel the policy.

Implications of not cancelling your car insurance after scrapping the car

You must cancel your car’s Registration Certificate (RC) at the respective RTO if your car is scrapped. Take a look at why you must cancel the RC of your car and inform ACKO about the scrappage of your vehicle.

  • Misuse of car documents: When the car is scrapped, the RC needs to be cancelled immediately. If it is not cancelled, fraudulent people could misuse the car’s documents. The documents can give identity to a vehicle used for illegal activity or to stolen vehicles.

  • Prevent vehicle theft: Criminals could use the document of the scrapped car for a stolen car when you don’t cancel the RC. By cancelling the car’s RC, you help avoid vehicle thefts.

Inform ACKO of the cancellation of your policy once you cancel the car’s RC at the respective RTO.

Car insurance refund for a scrapped car

As mentioned, it is essential to cancel the RC of your car upon scraping it. Once the RTO cancels the RC, you can proceed with the cancellation of your policy. Any refunds will be on a pro-rata basis. In case you have raised any claims during the policy period, you will not receive any refund.

Ensure you cancel the policy whether you have raised a claim or not. It is important to deactivate the car insurance policy if the vehicle’s registration is cancelled.

Also, read: Does car insurance go down as cars get older?

Frequently asked questions

Here are some common questions about the scrappage policy and its impact on vehicle insurance.


Is it worth scrapping a car?

The Vehicles Scrappage Policy aims to mitigate high levels of greenhouse gases and reduce accidents, primarily caused by older and unfit vehicles. As per the policy, unfit cars must pass the fitness test to start plying on public roads. Therefore, if your car’s Registration Certificate has expired, you may need to scrap the vehicle if it is found to be unfit to drive on public roads. Scrappage of such unfit cars is mandatory as per the policy.

What happens to road tax when I scrap my car?

If you cancel the RC of your car within 15 years of usage, then you can get a refund for the road tax paid.

Do I need to inform my insurer if I scrap my car?

Yes, you need to inform your insurer when you scrap your car. The insurer will cancel the insurance policy for your vehicle since it will no longer be registered for usage on public roads.

Do I need to cancel the Registration Certificate after scrapping my car?

Yes, you need to cancel the car’s RC at the respective RTO.

What are the main benefits of the Vehicle Scrappage Policy?

The policy aims to set up a system to scrap unfit cars in the country. Also, the policy focuses on mitigating the rising vehicular pollution levels in the country due to unfit vehicles.

Can I buy a 20-year-old car?

Yes, you can buy older vehicles if they are still fit to run on roads. As per the Vehicles Scrappage Policy, personal cars above 20 years and commercial cars above 15 years will be de-registered, and they are required to pass the fitness test to run public roads.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet; and is subject to changes. Please go through the applicable policy wordings for updated ACKO-centric content and before making any insurance-related decisions.


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