Car dealers promoting poor value insurance

Consumer NZ is advising car buyers who have been mis-sold mechanical breakdown insurance to demand a refund.

Man with broken-down car

Poor-value mechanical breakdown insurance is being heavily promoted by car dealers.

Consumer NZ chief executive Sue Chetwin said the insurance was heavily promoted by car dealers and could add more than $1000 to a vehicle purchase.

But she said the cover was hardly worth having and complaints showed the insurance continued to be sold with misleading claims about the protection it provided.

Comedian Raybon Kan, a Consumer NZ member, was sold the insurance by Palmerston North car dealer Lee European. The dealer claimed the policy would cover faults with the vehicle’s air-conditioning and transmission, which a pre-purchase inspection had indicated may require repair.

However, the dealer not only failed to provide a copy of the policy, it also didn’t tell Mr Kan the insurance excluded pre-existing faults and he wouldn’t be able to claim on it if the air-conditioning or transmission problems turned into a major expense.

Mr Kan successfully took Lee European to the Motor Vehicle Disputes Tribunal, which ordered the dealer to pay $2000 for the insurance and $2200 for subsequent repairs to the air-conditioning system.

“Dealers claim the insurance will protect you if vehicle parts suddenly fail and need repair. But the policies typically have long lists of problems that aren’t covered, including any pre-existing faults with the car and anything deemed the result of faulty repairs,” Ms Chetwin said.

Car buyers already had protection under the Consumer Guarantees Act (CGA) and didn’t need to rely on mechanical breakdown insurance, she said.

“If a car dealer sells a vehicle that’s not of acceptable quality, it has a legal obligation to sort out the problem.”

Ms Chetwin said you’ve got grounds to request a refund if:

  • You were misled about what the insurance policy covered. For example, you were told it covered all faults with the vehicle.
  • You were told the insurance was compulsory.
  • Insurance was added to your car loan without your knowledge.
  • You were sold insurance but never received a copy of the policy.
  • You were misled about your rights under the CGA. For example, the dealer claimed you needed the insurance if you wanted cover for faults.

Ms Chetwin said car dealers were keen to promote mechanical breakdown insurance because they stood to earn a commission on each policy sold.

“In our view, this insurance isn’t worth the cost. You’re better off spending your money on a pre-purchase inspection and getting the vehicle regularly serviced after you buy.”

Demand a refund

If you’ve been mis-sold mechanical breakdown insurance, demand your money back. We've got a template letter to help you.

If you don’t get a response, take it further.

Complaints about car dealers
You can take the dealer to the Motor Vehicle Disputes Tribunal. If the dealer misled you, the tribunal can order the company to refund your money.

Complaints about car lenders
If you bought the car on finance and the lender mis-sold you the insurance, make a complaint to its dispute resolution scheme. The scheme’s name will be in your loan document.

Complaints about insurers
If you bought the policy direct from the insurer and it misled you about the policy, you can make a complaint to its dispute resolution scheme. You can find the scheme on the Financial Service Providers Register.

You can also make a complaint to the Commerce Commission. It can prosecute companies for misleading consumers.

Let us know about your complaint by filling in the form below.

Email us at if you need help with your refund demand.

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