How to know if you’re paying for “junk” insurance

Have you been tricked into buying “junk” insurance? You may be able to demand a refund on those payments

As the royal commission investigation into the insurance sector continues, $118 million will be refunded to over 2000 thousand Australians who purchased what has been described as “junk” add-on insurance through five different insurers.

TODAY spoke with Philippa Heir from the Consumer Action Law Centre for her expert advice.

TODAY: Philippa – firstly, what is junk insurance?

HEIR: It usually works like this: You approach a business, looking to get a loan, a credit card or buy a car. You speak with a salesperson and choose what you want to buy. Usually when the salesperson is preparing the paperwork, they suggest you also buy insurance or a warranty along with the loan or the car you’re already buying. Sometimes it can be added without you realising.

The insurance or warranty is the ‘add-on’. The salesperson usually gets paid extra for each ‘add-on’ product they sell (a commission). These commissions can be a lot of money. We have seen commissions of up to 70 or 80% of the insurance or warranty. If you applied for finance (like a car loan, personal loan or credit card) the ‘add-on’ insurance or warranty gets added to that loan, so you pay extra interest as well.

The problem with this insurance is that it tends to be very low value. ASIC, the corporate regulator found that insurers were only paying out 9 cents for every dollar people are paying for these policies sold through car yards. As a comparison, a standard car insurance policy pays out about 85c in the dollar! During the three year period ASIC looked at, Australians spent around $1.6 billion in premiums on these policies sold through car yards, but only got back $144m in claims. Over this time insurers paid car dealers $602.2 m in commissions (more than four times what they paid out in claims).

TODAY: How do you check if you’ve been tricked into buying add-on insurance?

HEIR: Check your loan documents and credit card statements to see if you’re paying for add-on insurance or warranties. Words to look out for are ‘loan protection insurance’, ‘credit card insurance’, ‘gap insurance’ and ‘extended warranties’.

TODAY: How can you get money back?

HEIR: Consumer Action set up a website DemandARefund.com. It generates a letter you can use to send to the insurer or warranty provider to ask for your money back. Australians have used this website to demand over $1 million in refunds.

TODAY: Up to how much can be claimed back?

HEIR: During the three year period ASIC looked at, Australians spent around $1.6 billion in premiums on these policies sold through car yards. The average premium claimed through DemandARefund.com is about $2,100. Some people are sold more than one. One of our clients was sold almost $20,000 in add-on insurance. It’s worth taking the time to check your documents and jump onto DemandARefund.com to ask for your money back.

Interview and additional text by Luke Worthington.

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