When you buy a new or used vehicle, the car dealer may try to 'add on' insurance. Only pay for the cover you want.
Add-on insurance can be called different things. It might cover a breakdown or tyre and rim damage. Or it could offer cover if you're unable to repay the car finance you're getting. It's usually poor value for money.
Dealing with car dealer sales pressure
Buying a car can be a long process. You can spend hours negotiating with salespeople. You're asked to make endless decisions about fittings, finishes and extras, and then there's all the paperwork.
Salespeople can overload you with information and choices. They may lead you to choose products they make high commissions on, but are poor value for you.
Avoid decision overload and make sure you:
- Arrive with a clear idea of what insurance extras you do and don't need.
- Stick to your guns and don't be 'upsold' if you don't want what's on offer.
- Avoid making emotional decisions — buying a car can be exciting, but try to stay calm and logical.
- Ask questions if you're unsure about anything. Salespeople often only tell you the positives. Feel free to ask about things like exclusions.
Moneysmart Cars helps you navigate the decisions at the car dealership to give you confidence and control.
Insurance through car dealers can be poor value
When you're really focused on buying the car, the extras that dealers sell can seem less important. You'll get a better deal knowing that:
- Car dealers often get a 20% commission of the insurance premium. The policy is good for them, but not necessarily good for you.
- The policies are usually far more expensive than policies sold through insurance brokers, banks and super funds. They provide limited cover and have low payouts compared to the premiums you pay.
- Most add-on insurance premiums are included in your car loan. Interest charges make premiums even more expensive.
Types of insurance to watch out for
Guaranteed asset protection (GAP) insurance
GAP insurance is also called 'motor equity insurance' or 'shortfall insurance'. If you write off your car, it pays the lender if there's a gap between what you owe and what you get from comprehensive car insurance.
Your car’s value and the amount owing on your loan will reduce over time. So the longer you keep GAP insurance policy, the less likely it is that you will receive a payout from your insurer.
Loan termination insurance
This covers you if you have to return the car because you can’t make repayments due to illness or injury. The insurance pays the difference between the car’s value and what you owe on your loan. You don't get to keep the car because it goes back to the dealer.
This type of cover can be very limited. It might only cover you for accidental death. For example, it covers death when a car hits you, but not death as the result of an illness. There's a cap on the amount that's paid.
Tyre and rim insurance
This covers limited damage to tyres and rims. It covers blowouts, punctures and damage from various road hazards (like driving through a pothole). It doesn't cover general wear and tear.
Repairing or replacing your tyres and rims might cost a lot less than the insurance policy.
Mechanical or motor breakdown insurance
This is an extended warranty on top of the manufacturer’s or statutory warranty. It generally covers original components and fittings at the time of purchase against mechanical failure or defect.
Mechanical breakdown insurance cover doesn't start until the new car warranty expires. If you buy a car that comes with a three-year new car warranty, you would be paying for a policy you won't be able to claim on for at least three years.
Australian Consumer Law gives you automatic consumer guarantees regardless of any other warranty the dealer sells or gives you. Make sure that an extended warranty provides benefits greater than what you automatically receive under the consumer guarantees.
Find out more about consumer guarantees on cars on the Australian Competition and Consumer Commission (ACCC) website.
Consumer credit insurance
This covers your loan repayments if you lose your job, are sick, injured or die. But other insurance you have may already protect you in these events.
See consumer credit insurance for more information.
Add-on insurance refunds
Refunds due to unfair conduct
The Australian Securities and Investments Commission (ASIC) has found unfair conduct among insurers who offer add-on insurance and extended warranties through car dealers or finance brokers. The insurers have agreed to refund more than $130 million to customers who were sold these products unfairly.
You might get a refund if you bought an add-on insurance product from:
- Aioi Nissay Dowa Insurance Company Australia (sells Toyota Insurance)
- NM Insurance (underwrites motorcycle insurance for The Holland Insurance Company, AAI (part of Suncorp) and AIG Australia)
- Eric Insurance (formerly AVEA Insurance)
- LFI (insurer for Liberty Finance)
- Sovereign Insurance
- Virginia Surety
- QBE Insurance
- MTA Insurance (owned by Suncorp)
- Swann Insurance
- Allianz Insurance
- National Warranty Company
Your car or motorcycle loan contract will show if you had any type of add-on insurance with these insurers.
Contact the insurers to check if your policy is eligible for a refund.
Cancelling a policy
You can cancel a policy at any time by contacting the insurer directly. Your product disclosure statement (PDS) will explain how to cancel.
All policies have a cooling-off period, which is usually around 30 days. You should get a full refund of the premium if you cancel during the cooling-off period.
If you cancel outside the cooling-off period, you will usually get a partial refund and pay a cancellation fee.
Claim on add-on insurance
To make a claim on your add-on insurance, follow the steps outlined in your PDS. It's best to lodge your claim as soon as possible.
Complain about add-on insurance
Contact the provider's internal dispute resolution department if:
- you think a policy was sold to you unfairly, or
- your insurer rejects your claim
If you can't reach an agreement, contact the Australian Financial Complaints Authority (AFCA) to make a complaint and get free, independent dispute resolution.
Some extended warranty providers are not members of AFCA. You will need to negotiate with the warranty provider.
For tips on lodging a complaint, see how to complain.