June 4 - A scandalous expose of shady practices regarding extended warranties in the South African used car industry should be a wake up call to all short term insurance consumers. Once again the culprits are sleazy brokers, this time in the nefarious form of used car salesmen.
Used car dealers are generally thought of as the epitome of untrustworthiness in the public consciousness, and it's a reputation that is well earned. For any of us who have purchased "pre-owned" vehicles only to find that your gently used luxury vehicle is in fact a lemon held together by duct tape and lies this latest car insurance swindle will come as little surprise.
According to a report on iafrica.com used car dealerships are making an illegal killing by selling extended warranties at inflated prices and keeping the extra loot for themselves. They're in league with the warranty companies who are happy to grease their palms because they too grow fat off the con.
When you buy an extended warranty for your used car the dealership acts as a broker between you and the warranty company. For this service they are meant to receive a commission of 12.5% of the premium. But is has emerged that the actual percentage they're getting is closer to 50% thanks to some creative accounting that leaves the clueless consumer holding the bag.
In an example a consumer purchases a two-year warranty for R5000. After six months the policy holder decides to cancel the coverage. The pro rated refund should be substantial since there is still eighteen months of coverage to go. In fact the consumer only receives back R2073! The reason is that the warranty company and the dealership have already carved up the bulk of that payment and pocketed it under the disguise of "administrative costs", "repair funds", and "underwriting fees".
This breaks numerous short term insurance laws and encourages the dealerships to rip off their clients since they are rewarded on this huge commission basis. There is no protection for the consumer at the moment.
We advocate dealing with insurance providers directly, by using a car insurance company like Dial Direct for instance. If you buy a used car take out compehensive coverage; it's better to be safe than sorry, and if you don't make any claims you can get a lot of that money back down the line thanks to Bucks Back bonuses - Dial Direct will pay you back 25% of your policy cost, or your entire first year of premiums, after 4 years.
Be smart and aware of the pitfalls when buying an extended warranty, and think twice before you trust that oily used car salesman with the toothy grin.
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