Looking under the bonnet of mechanical breakdown cover
Mechanical breakdown insurance isn't cheap, and for the automotively challenged, it isn't easy to understand either.
A 12-month policy can easily cost between $500 and $800, a three-year policy $1200, or more.
Many car buyers pay the one-off premium by adding it to the debt they take on to buy the car, meaning interest inflates the cost still further.
But is mechanical breakdown insurance worth the money?
The policies pay for some of the costs of some mechanical failures.
For those unlucky enough to buy a real lemon, claims can easily be bigger than the premium.
But the rule of insurance is that most policyholders pay more than they claim. If it wasn't insurers would go bust.
Breakdown insurance is like the "extended" warranties sold on household appliances, and consumer advocate Consumer NZ warns: "many provide no greater protection than what you're already entitled to under the (Consumer Guarantees) Act."
Under that Act, a dealer should sell cars free from substantial defects. If a car does break down the dealer has to fix it.
But with their eyes on the shiny car they are after, many buyers won't think too deeply about what breakdown insurance covers, and whether they really need it.
Cases that went before the Motor Vehicles Disputes Tribunal this year demonstrate the limits, pitfalls, and cost of breakdown insurance and how some motor vehicle dealers really see it.
THE REAL COST
In one case, a man bought a 2002 Ford Falcon for $12,500 and opted for a dealer's mechanical breakdown "warranty" for $995.
He added the premium to his debt at 19.95 per cent interest.
Over three years the interest would have cost him $335.
The older the car and the higher the mileage, the higher the premium.
Policies for European cars cost more and have higher excesses.
A standard excess might be $125 on a Japanese car, but $350 for a European one.
Sometimes breakdown insurance is thrown in for "free" by dealers. If you don't want it, just demand $500 to $1000 off the price of the car.
INSURANCE V WARRANTIES
In another case a man bought a warranty. But warranties are not insurance.
A car dealer can offer warranties instead of insurance.
They are supposed to do the same job, but are not covered by insurance regulation.
Warranty offerers do not have to join a free disputes resolution schema, says Stephen Gladding from Protecta Insurance, which sells breakdown insurance.
"You don't have the same protections as with insurance. The idea with insurance is that insurance companies have to have their claims-paying ratings, like our A-, so the policyholder knows we will be there to pay their claim, this year, next year, or in ten years' time."
SMALL-PRINT CAN TRIP YOU UP
Buying insurance brings duties and obligations. It's easy for a policyholder to stuff up.
In the case of the Ford Falcon buyer, the tribunal found: "The purchaser was unable to claim under the ... mechanical breakdown warranty because he had failed to comply with a condition of the warranty which required him to have the vehicle serviced after 5,000kms of use and the trader had not serviced the vehicle before it was supplied to him."
The result for him was a bill for just short of $1500, more than the premium he had paid.
Policies often impose other obligations such as using the right fuel, keeping the oil topped up, stop driving the instant a fault occurs, or an engine warning light comes on, and banning modifications of the car.
Infringe them, and a claim will be refused.
A buyer whose eyes are on the car, not the policy, is at risk of accepting the cover, and not reading it carefully.
NOT EVERYTHING IS COVERED.
In another case, a woman tried to claim on her policy after she found an oil filter had fallen off her car. That's a fairly major mechanical failure, but the policy didn't cover "oil filter related issues".
Many mechanical breakdown policies are riddled with exclusions, with "pre-existing faults" at the top of the list.
Costs relating to the repair or replacement of brake shoe linings/disc pads, bushes, mountings, shock absorbers, suspension air bags, tyres and wheels, wheel alignment and balancing, won't be covered either.
Nor, it is likely, will the repair or replacement of batteries, bodywork, communication systems, convertible roof or sunroof , cosmetic items, door locks/remotes, seats , lights, glass, mirrors , handles, hinges, paintwork, rams, satellite navigation systems, seat belts, struts, trim, upholstery, visual and audible parking systems, clutches due to wear and tear, exhaust systems and spark plugs.
MULTIPLE FAULT HEADACHE
In another case, a 12-year-old BMW with more than 200,000 kilometres on the clock experienced a large number of mechanical failures six months after purchase.
The buyer had a dealer's warranty, but "he had to pay a total of $856.96 for two insurance excess payments, the computer diagnostic test, eight spark plugs, steam cleaning, courier charges and cleaning material charges".
When there are multiple mechanical failures, excesses can mount up, and so can the costs of things like antifreeze, fluids, filters, lubricants and refrigerant, which are not always included in warranties and insurance.
SHIELD OF THE DEALER
Some cases seem to show dealers encouraging buyers to make claim against their breakdown insurance, when it is the dealers who should be fixing the damage.
In one case, a woman was seeking to have a dealer take back a 2007 Suzuki Swift which she had bought for $8750, but was soon clunking along.
The trader suggested she make a breakdown insurance claim, even offering to pay the excess.
She refused, and the trader had to take back the car.
Another dealer suggested a buyer make a claim on a car which had had a substantial failure within a month of purchase, which would have cost thousands to fix.
Finance companies also like mechanical breakdown insurance.
Not only do they often get to charge interest on the premium when it is added to the loan, but there's an old adage in the industry: "Bonnet up, wallet shut".
If the car's off the road, then there's an increased chance that loan repayments will stop.
Adam Heath, executive general manager of personal insurance at Vero, says mechanical breakdown insurance can provide cover if a dealer decides not to fix a problem.
"If a claim is disputed with the vendor, it can result in additional costs and inconvenience. Having a ... mechanical breakdown policy offers customers the option of a fast and efficient repair with minimal down time," he says.
Gladding says insurers keep an eye on dealers, and stop them selling policies, if they prove to be a seller of dodgy motors.
"We are not (in the business of) paying for dealers' reconditioning," Gladding says,
Heath says dealers acting as agents for Vero's Autosure breakdown policy are required to inspect the vehicles prior to sale to ensure the customer is buying the vehicle as advertised and that there are no hidden faults."
But cars do break down and Autosure fielded an average of 3600 phone calls a month, settled tens of thousands of claims a year and has seen individual repairs frequently exceeding $8000, Heath says.