Taking out the trash: useless ‘junk policy’ insurance policies

Insurance customers may be at risk of paying add - on costs for useless and nonessential items

The nature of 'Junk insurance'

Junk insurance is a term coined by consumer advocates and lawyers to define add - on insurance policies that are sold at the time of the purchase and provide little value to a purchaser. These policies can include cover for nonessential parts of cars, such as tyres and rims, and certain rights under a credit card or loan that are already provided under statute.

The Consumer Action Law Centre is running a 'Stop Selling Junk' campaign to assist consumers to seek a refund for these junk insurance policies. Redfern Legal Centre strongly supports this campaign and continues to provide free legal advice for consumers who have been mislead into purchasing these 'junk insurance' products.

How it affects you

Customers are required to pay additional and ongoing costs for these ‘add on’ junk insurance policies, therefore a client may be paying for certain cover they are not aware and on which they are unlikely to ever make a claim. Many consumers are paying for these policies as part of their car finance agreements, which means they are paying interest and fees on the cost of borrowing money to pay for the junk policy. The media release on a report released by the Consumer Action Law Centre found that Australians could be due for “over $70m worth of refunds each year for insurance and warranty products they don’t even know they’ve bought”.

Why it needs to be abolished?

Junk insurance policies are often sold without the genuine and informed consent of the consumer. Brokers allude that these insurance policies are required as part of a loan agreement when in fact they are discretionary add-on products. Many consumers are often unaware they have purchased an additional ‘premium’ or ‘warranty’ on which they are unlikely to ever make a claim. With most of these policies, the insurance companies pay the agent, often the car dealer, commissions for each policy they sell. This is called ‘conflicted remuneration’ – meaning that there is an incentive for the agent to sell the policy for their own benefit, regardless of whether it is suitable for the consumer. Cases consistently show that these unnecessary junk insurance policies are mostly sold unknowingly to customers with limited financial literacy who are already struggling to make ends meet.

The Consumer Action Law Centre noted that some of the products are “designed with so many limitations [that] they’re almost completely worthless,” putting consumers in a position to take strong, effective legal action. Due to the unfair, non-consensual nature of the implementation of these junk insurance policies, vulnerable consumers must be made aware of insurance scandals and the sales tactics used to sell them. Furthermore, because of the costs and complexity of litigation, companies and insurers must be deterred from selling “junk” by other means.

Take action

If you think you may have been affected by these schemes, complaints can be made through the Consumer Action Law Centre’s online complaint tool. This allows you to submit a formal complaint and request for a refund directly to the insurer.