Why you should be wary of extended warranties and product insurance


Spending a little money to buy "peace of mind" is an appealing idea. But there are plenty of insurance or warranty products that seem to offer that feeling of peacefulness and very little else.

Here are a few things to look out for:

The add-on sales pitch

extended warranties

If you've bought a car or applied for a loan or credit card, it's likely a salesperson asked you if you'd like to add insurance or a warranty on top.

Always be suspicious about financial products sold as add-ons - they often pay hefty commissions to salespeople but tend to be very poor value for people who buy them.

Consumer credit insurance (CCI)

Often called "loan protection insurance", CCI claims to protect you if you can't make loan repayments because of job loss, disablement or death.

But limitations and exclusions in the fine print rule out large numbers of claims, leaving CCI with the dubious honour of being the worst-value insurance on the market, paying out just 23c in the dollar.

Gap insurance

Sometimes known as "price protection", "shortfall" or "guaranteed asset protection", gap insurance is designed to cover the amount left on your car loan if your car is written off or stolen and your comprehensive policy doesn't cover the cost in full.

Some finance providers receive 50%-65% of premiums as a commission, leaving very little to pay out in claims. Do you need it?

Motor vehicle extended warranties

Some are better than others, but a few we've seen are almost completely worthless once you consider all the exclusions.

Never buy one without sleeping on it.


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