Mechanical breakdown insurance
Don't buy what you don't need
If you buy a car from a car dealer, they might offer you
mechanical breakdown insurance. Here we explain what this is, and
how statutory and new car warranties might already cover you.
What is mechanical breakdown
Mechanical breakdown insurance, or motor breakdown insurance
(MBI), is a type of add-on insurance policy that a car dealer might
offer you when you buy a car. It provides some cover for repairing
or replacing specific parts of your car if there's an unexpected
Sometimes MBI is called extended warranty insurance, because it
commences after your new car warranty ends. MBI is different from a
manufacturer's extended warranty as it is provided by an insurance
company. If you're not sure what you're buying, or who is providing
the cover, make sure you ask.
ASIC's Peter Kell talks about mechanical breakdown
Listen to ASIC Deputy Chairman, Peter Kell talk
about the sale of add-on insurance policies like mechanical
breakdown insurance through car dealers and how the market is
Subscribe to ASIC View podcast on PodBean.
Do I need mechanical breakdown
Your rights under Australian Consumer Law may protect you after
the new car warranty expires. This means you can ask the car dealer
or manufacturer to fix a major fault with the car even if it's out
of warranty. MBI doesn't necessarily give you any more protection
than you already have if you buy a new car.
Visit the ACCC's website for details on consumer guarantees under
Australian Consumer Law.
MBI coverage doesn't start until the new car warranty expires.
So, if you get an MBI policy when you buy a car that comes with a
3-year new car warranty, you will be paying upfront for a policy
you won't be able to claim on for at least 3 years.
As well, policy exclusions often mean many mechanical
problems are not covered by MBI, so it's important to check what is
covered - and what isn't - before you sign up.
What to ask the dealer before
getting mechanical breakdown insurance
Buying a car can be a long process. It's important to remain
calm and ask questions if you're unsure about anything.
Here are some things to consider if a car dealer offers you an
- Cost - MBI policy premiums are often packaged
into your car loan. Because you pay interest on the premiums, the
insurance is even more expensive and the amount you have to borrow
is higher. Ask the dealer for the full cost of the premium,
including the cost of any interest payable if it is added to your
- Restrictions and exclusions - Find out what's
covered and what's not covered. Make sure the coverage is worth the
- Commission - Car dealers who sell these
policies receive a commission on the sale. Ask the car dealer how
much commission they will get if you buy the insurance policy.
- Vehicle servicing obligations - Ask about how
often and where you have to get your car serviced in order for the
insurance to remain valid. Mechanical breakdown insurance policies
sometimes restrict where you can get your car serviced. If you go
somewhere else, they might reject any future claims.
- Coverage period - Find out how long you will
be covered for.
- Cooling off period - Is there a cooling off
period when you can cancel the policy for free if you decide you
don't need it?
The MoneySmart Cars app can help you work out the real cost of
buying a car and allow you to crunch the figures on add-on
Work out the real cost of buying and running a
MoneySmart Cars app
How to make a claim, cancel or
complain about mechanical breakdown insurance
See our add on insurance webpage for details
on how to make a claim on your policy, cancel it or make a
Before you buy mechanical breakdown insurance,
make sure you understand how much it will cost you and what it
really covers. Salespeople can be very persuasive but when you are
covered by Australian Consumer Law, this type of policy can be an
Last updated: 04 Feb 2019