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 insurance?

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 mechanical failure. 

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 insurance

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 failing consumers. 

Subscribe to ASIC View podcast on PodBean.

Do I need mechanical breakdown insurance?

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 not to buy

Mechanical Breakdown Insurance-infographic thumbnailOur mechanical breakdown insurance infographic shows why you shouldn't buy this type of add-on insurance product when you purchase a car from a dealer.

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 MBI policy:

  • 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 loan.
  • Restrictions and exclusions - Find out what's covered and what's not covered. Make sure the coverage is worth the cost.
  • 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 insurance.

Work out the real cost of buying and running a car.

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 complaint.

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 unnecessary purchase.

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Last updated: 04 Feb 2019