Mechanical breakdown insurance, do I really need it?

Elias bought his first car from a motor vehicle dealer for $8,500. The dealer, acting as a broker for the lender, arranged the loan and included both mechanical breakdown insurance and guaranteed asset protection insurance without discussing this with Elias. Elias assumed both were compulsory and did not query their inclusion with the dealer.

A short time later the car’s lights stopped working and Elias took the car to the dealer’s mechanic. The mechanic fixed the lights but said each light was a separate claim and fell beneath the $200 policy excess. Then there was a problem with car’s exhaust, and the mechanic said the policy excluded any problems relating to the exhaust.

Elias started to wonder what the insurance did cover, googled the insurance and came across a Consumer NZ article which confirmed Elias’s view that the insurance was unnecessary and not good value for money.



Elias complained that he was:

  • misled about what the policy covered and did not cover
  • misled about the cost of the insurance
  • not told that the excess would apply to each individual fault
  • given the impression the insurance was compulsory
  • not given a copy of the policy.

The broker responded that it had given Elias all the relevant information and he had signed the loan agreement accepting the insurance.

Elias did not accept this response and complained to FSCL.



When we advised the broker that we had started our investigation, the broker responded immediately offering to refund all Elias’s premiums, a little over $2,000.



Elias accepted the settlement and the complaint was resolved.


Insights for or participants

Under the Responsible Lending Code lenders (and in our view brokers, acting on the lender’s behalf) are obliged to make reasonable enquiries that credit related insurance will meet the borrower’s requirements and objectives. Insurance should never be automatically included in the loan. The lender is obliged to ensure the borrower is making an informed decision and understands the full implications of including insurance as well as the insurance’s key features.