Why you should avoid life insurance sold at car dealers
When you purchase a vehicle from a car dealer, you'll probably be offered a whole lot of extras. While an alarm system or GPS navigation may be worth forking out extra for, one add-on you should avoid at all costs is life insurance.
Drawing on the results of an ASIC investigation - which found that customers who buy life insurance through car dealerships generally wind up with lemon policies - this guide will run through the pitfalls of saying “yes” and reasons why you should politely decline.
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Life Insurance Comparison Table - page last updated September 19, 2020
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Snapshot of ASIC’s findings
Let’s face it, thinking about what will happen to your loved ones when you die is a somewhat macabre thing to do. However, it’s well worth the thought, as settling on a suitable life insurance policy could help your family out financially, if unforeseen events down the track mean that you cannot look after them (those having doubts about it should read this).
That being said, it’s not the kind of decision you should be making in a car yard. Here’s why, according to research conducted by ASIC in 2016...
- It’s too expensive. Aussies who buy life insurance sold in car dealerships, also known as “add-on life insurance” pay up to a whopping 17 times more than similar policies which can be purchased elsewhere. Go figure.
- Payout rates are the lowest. When it comes to the crunch, your dependents are more likely to see their claims rejected. Often in the fine print there’ll be plenty of exclusions and very minimal cover which doesn’t suit everyone.
- High mark ups for small business owners. If you’re a small business owner, don’t expect to get a good deal as you may be charged up to 80% more from a car dealership than an individual taking it out for “personal-use”.
- Targets young people...who need it the least. ASIC also found that among the number of policies sold via car yards, 10% were purchased by young (and probably perfectly healthy) people aged 18 - 21 years old, a demographic who generally have few or zero dependents anyway.
- You’ll learn very little about the policy. It’s not easy to make other financial decisions when you’re signing off on a big ticket item such as a vehicle. So you can see why ASIC found that most people who say “yes” to add-on life insurance policies in car dealerships don’t learn much about it at the time. In fact, some car buyers who ASIC interviewed said that in retrospect, they felt embarrassed that they didn’t even know what they had signed up for.
But of all the add-on life insurance flaws pointed out by ASIC, the following one would have to be up there as the worst…
- Premiums get factored into car loan debt. Most dealerships offering add-on life insurance tie upfront premiums into the actual car loan package. So those who opt in get charged interest on top of a premium that’s already expensive to begin with.
What’s ASIC doing about it?
On the plus side, the consumer watchdog has warned the life insurance industry to clean up its act or it may take disciplinary action. ASIC has called on insurers to address the high costs, poor value and poor claim outcomes that come part and parcel of the life insurance policies being sold at car dealers.
Some insurance providers have responded well to the investigation and said that they’re working on it.
Did you know, that ASIC conducted a review into the life insurance industry as a whole? Check out our guide on what it means here.
Choosing the right life insurance for you
Ready to buy a life insurance policy with a considerably lower price tag (yet higher level of cover)? It’s easy to shop around here at Mozo, with several providers listed on our site for you to compare from. So don’t get taken for a ride at a car dealership and follow these three steps instead...
1. Know what to look for. Before you start comparing away it’s a good idea to calculate how much your dependents rely on you financially, and what they’d need to survive on if you died prematurely. Doing this will help you determine how much life insurance you need.
2. Compare online. Shortlist policies coming with your favourite features, which may include pay on time discounts, advance payments or quick application features. Then you can kick off those enquiries and receive quotes.
3. Read the fine print. Never mind tediousness, it’s always worth trawling through the fine print, as you never know what could be hiding in there. For instance, insurance providers are known to define terms differently from one another, such as the definition of a heart attack. Then once you’re happy, submit your application so you can put your mind at ease!
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