Should you buy life insurance from a car salesman?
Buying a car can be an exhausting exercise, and it becomes even more fraught when insurance is involved.
Car dealers are selling life insurance that costs up to 18 times more than buying it through other channels. What makes it even poorer value is a low payout rate of $6 million, or only 6.6% of gross premiums of more than $90 million.
Many consumers find it hard to say no to the hard sell from car dealers when they are offered the add-ons, according to an investigation by the regulator, ASIC. It found that one in 10 policies were sold to consumers aged 18 to 21 who rarely need life insurance because they don't have dependents.
ASIC says consumers typically pay $1355 for life insurance through a car dealer against $240 through a life company over the phone or $80 from a superannuation fund.
"This get-rich-quick scheme for car dealers and finance providers has to end. Insurers need to stop selling this junk," says David Leermakers, senior policy officer at advocacy group Consumer Action.
"Salespeople earn up to 90% commission on some of these products and it encourages them to sell in an underhanded and sneaky way."
People who buy the add-on insurance from the car dealer have little understanding of its terms. It relates to the car loan if you die and your dependants take ownership of the car.
Peter Kell, the deputy chairman of ASIC, says the insurance industry needs to lift its standards. "The message to industry is clear: substantial improvements need to be made to both the design and distribution of these products."
ASIC says buying a car can be a long process with hours spent negotiating, making decisions about fittings, finishes and extras, not to mention filling in paperwork.
It recommends consumers stick to their guns and don't be "upsold" if they don't want what's on offer.
Also don't be afraid to ask questions. "Salespeople often only tell you the positives but feel free to ask about things like exclusions. It's your money after all," says ASIC.
Kell says insurers must address the high costs, poor value and poor claims outcomes of their add-on products, especially when the same insurers provide alternative products that offer cheaper and more comprehensive cover.