Changes to Consumer Warranty Insurance Protect the Consumer
Have you ever been pressured into purchasing an add-on insurance product such as consumer credit insurance or mechanical breakdown insurance, even though you weren’t sure you really needed it?
A Financial Services Royal Commission found multiple issues in this area, ranging from poor-value products (also known as ‘junk insurance’) and unfair sales practices, to claims outcomes underperforming in the overall insurance market.
What is add-on insurance?
‘Add-on’ insurance refers to an insurance product that is ‘added on’ to the sale of another product such as a car or mobile phone. Until recently, salespeople have been allowed to offer these add-ons at point of sale and may even say, “if you don’t buy the insurance now, you won’t be able to buy it once you leave the store”. This can put unnecessary pressure on the consumer to buy it then and there, or risk not being able to purchase it once they have begun using their car or phone.
From 5 October 2021, ASIC introduced a new deferred sales model that gives consumers a mandatory four-day pause between purchasing the principal product and deciding whether to purchase add-on insurance. This means you can now use those four days to explore the benefits of the add-on insurance you’ve been offered, instead of being pressured to buy it on the spot. You can go home, research the benefits of the insurance and compare it with any alternatives. Ultimately, you may decide it’s not worth purchasing at all or that you are already covered by other insurance you have.
For what kinds of products is add-on insurance offered?
Aside from cars and mobile phones, add-on insurance policies are offered on personal loans, mortgages, event tickets and even when you purchase a pet.
Examples of add-on insurance for cars
When buying a new or used car, you may be offered one or more of the following:
- General Asset Protection insurance (GAP) – Also known as shortfall insurance or motor equity insurance. If your car is written off, your car insurance company may only pay out on the car’s market value. GAP insurance covers the difference between what your car insurance policy pays and the car’s replacement value.
- Consumer Credit Insurance – If you can’t make your minimum car loan repayments because you get sick or injured or become involuntarily unemployed, CCI is designed to pay them for you. If you die, the policy will pay the outstanding balance.
- Tyre and Rim insurance – Most car insurance policies won’t pay for tyre damage such as punctures, blowouts, bursts and cuts. Tyre and rim insurance may be offered as an add-on to your comprehensive policy.
- Mechanical Breakdown insurance – Also known as an extended warranty, Mechanical Breakdown insurance comes into play once your vehicle’s manufacturer’s warranty has expired.
- Loan Termination Insurance (LMI) – This is designed to provide protection if you can’t meet your loan repayments and have to terminate it. You can return your purchase and your LMI will cover the difference between the value of your purchase and what you still owe.
Don’t risk being over-insured
Some types of policies that you may be offered when making a purchase may already be in your insurance portfolio. They may have been provided by your employer or you may have purchased them yourself.
Am I at risk if I don’t buy the add-on insurance?
Consumers are protected by the Australian Consumer Law (ACL) in areas including product safety, unfair contract terms, unsolicited consumer agreements (such as telemarketing and door-to-door sales), layby agreements, product safety and your rights to a repair, replacement or refund. Familiarising yourself with the ACL can help you to understand whether an add-on insurance product is worth purchasing.
- Salespeople often receive commissions of up to 20% on the sale of insurance products.
- Explore whether you are covered under another policy you already own such as Contents insurance or through your credit card.
- The ACL protects you against a range of potential problems with products you purchase.
- It is smart to say no to add-on insurance offered on the spot. You never have to feel badly for the salesperson.
- Apple can no longer offer Apple Care at checkout and can now only send you an email offering it for your consideration following your purchase.
- If you are pressured into buying add-on insurance at the point of sale, you have the right to cancel it and obtain a full refund.
- Extended warranties such as those offered at point of sale by retailers including Myer and Harvey Norman are not considered ‘add-on insurance products’ in the ASIC Act.
It’s good to know that the pressure to buy add-on insurance products has been removed. As always, it’s important to be a wise, well-informed consumer so you can avoid spending unnecessarily on products you may not need or want.