Mechanical Breakdown Insurance is also known as extended warranty. If you have bought a second-hand or used car you may have been sold mechanical breakdown insurance. Mechanical breakdown insurance is different to manufacturer’s warranty which is a warranty that you get with a new car purchase.
There are many reasons why mechanical breakdown insurance falls into the junk insurance category. One reason is that they have rigorous requirements to get your claim approved. The terms and conditions of these policies are often complex and prevent your claim from being approved.
Another reason why you should not have been sold the policy is because discretion to fix your car is on the insurer as to whether they payout your claim. This means that the insurer may find reasons why you cannot claim, even though you believe you are eligible.
The insurance policy may have clause which explains that the insurer is not obliged to pay all claims. For this reason, the claims ratio on mechanical breakdown insurance products are poor.
If you have purchased mechanical breakdown insurance, you may be eligible for a refund.
If you have had previous issues with your used car, you may not be eligible to claim on the policy. Similarly, to pre-existing conditions on other insurance policies, mechanical breakdown insurance or extended warranty policies often exclude pre-existing conditions on your used car.
Extended warranty policies may provide limited value. If you have ever bought a used car, you may have been sold an extended warranty policy or it may have been added without you knowing.
The Financial Services Royal Commission reported on the mis-sale of mechanical breakdown insurance and extended warranty policies. The Royal Commission confirmed that these policies were often complex with onerous terms and conditions that were difficult for consumers to understand.
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