Is mechanical breakdown insurance worth it?
Mechanical breakdown insurance pays for some repairs when a car has an unexpected mechanical or electrical fault.
Mechanical breakdown insurance pays for some repairs when a car has an unexpected mechanical or electrical fault.
If you buy from a dealer for personal use, the Consumer Guarantees Act already gives you rights to a repair, replacement or refund for faults you didn't cause, and the government's Consumer Protection website says MBI is usually not worth it in that case.
The CGA gives less protection in some situations, such as private sales or business purchases where it's contracted out, and every policy has its own exclusions and servicing rules. This guide is general information, not a recommendation.
What does MBI cover?
What it covers
Mechanical breakdown insurance (MBI) covers unexpected mechanical or electrical faults, subject to the policy's exclusions. When you claim, the insurer pays the repairer's cost, less your excess.
Policies often include extras such as roadside assistance.
What it doesn't
In the Commerce Commission's 2021 review, the most common reasons MBI claims were declined were that the fault wasn't covered, the problem was there before the policy started, or servicing requirements weren't met.
Policies usually run for one, two or three years. Some only start once the manufacturer's warranty ends. MBI is tied to the car, not the loan. You can buy it without finance.
Before you buy, check whether your policy covers:
- parts that wear out with normal use
- routine servicing items
- faults that were there before cover started
- faults caused by missed servicing or by modifications
- the claim limit for each claim and in total
- hybrid or EV batteries.
Policies can require the car to be serviced on time, sometimes by an approved repairer. Keep your service records.
What rights do you already have?
If you buy a car from a dealer for personal use, the Consumer Guarantees Act (CGA) applies. The Consumer Protection website says the car must be of acceptable quality, and that includes lasting a reasonable time.
If it isn't, you can ask the dealer for a repair, replacement or refund. The CGA applies whether or not you buy a warranty or MBI.
There's no set time limit. Consumer Protection says how long the CGA covers a car depends on its type, age, kilometres and use.
How is MBI different from a manufacturer's warranty?
Manufacturer's warranty
A manufacturer's warranty comes with the car's price. The maker repairs or replaces faulty parts for a set time. Your CGA rights still apply after it ends.
MBI
MBI costs extra. It's an insurance policy, so the insurer's terms apply, along with an excess and claim limits.
When does the CGA give less protection?
Private sales
The CGA doesn't apply.
Business purchases
A dealer can contract out of the CGA in writing. Consumer Protection says dealers usually do this for commercial sales, and that for business purchases an extended warranty "may be a good option".
Older or high-kilometre cars
What counts as a "reasonable time" depends on the car's age, kilometres and use.
The Commerce Commission's 2021 review noted that MBI has a defined cover period, and that a claim can be quicker than pursuing a CGA remedy, which can be hard to enforce.
Cost matters too. If the premium is added to your loan, you pay interest on it, so it costs more than paying cash.
In its 2021 review (data for the three years to March 2020, five insurers), the Commerce Commission found that claims were made on 22% of active MBI policies, and 70% of those claims were approved.
The average MBI payout was $1,246, against an estimated average retail premium of $1,047. These are industry-wide figures from 2018â2020, not current, and not a guide to any one policy. Source
MBI claims and CGA rights
The Commerce Commission's 2021 review noted that claiming on MBI when a CGA remedy may be available can use up your claim limit, cost an excess, affect no-claims status or transfer, and raise premiums over time. The Consumer Protection website explains how to raise a CGA fault with the dealer.
Can you cancel MBI?
The Commerce Commission's 2021 review said MBI bought with a car is, in most cases, an 'extended warranty' under the Fair Trading Act. If so, you can cancel within 5 working days of getting a copy of the agreement and get a full refund of what you paid for it. Check the cancellation section of your policy.
After that, the policy's own terms apply. Cooling-off periods vary, and a pro-rata refund isn't guaranteed. Some policies can be transferred if you sell the car.
From 5 December 2026, for loans entered into from that date, a new law lets you cancel a repayment waiver or extended warranty offered by your lender within 5 working days of receiving the disclosure statement, unless the lender reasonably requires it. This includes lender 'GAP-style' waivers. It generally doesn't cover GAP or breakdown insurance policies from an insurer, which have their own cancellation terms. Correct as at 26 September 2026.
If you repay your loan early, the law gives a proportionate refund for some products financed under the loan, mainly loan repayment (consumer credit) insurance arranged by the lender, and repayment waivers or extended warranties provided by the lender. Refunds for GAP and breakdown insurance depend on the policy terms. Ask the lender and insurer how any refund is worked out. A refund usually reduces your loan balance rather than being paid to you in cash.
Questions to ask before you buy MBI
- Is the car covered by the CGA? (Bought from a dealer, for personal use?)
- Is there still a manufacturer's warranty?
- What exactly is covered? What are the claim limits and the excess?
- What servicing do I have to do, and where?
- Are faults that existed before cover started excluded, and how is that decided?
- Does it cover hybrid or EV batteries?
- When does cover start?
- How do I cancel, and what refund applies?
- If it's added to my loan, what's the total cost with interest?
- Who is the insurer, and does the seller earn commission?
Buying on finance through CarPow
Insurance is optional. If you choose any cover, before your loan documents are sent you'll confirm in your CarPow customer portal that you understand it's optional, that you've received and read the policy terms and documents, and that the cover suits your needs. The total insurance cost will be added to your loan and you'll pay interest on it. Your loan documents show the cost of each product before you sign.
Separately, a lender can make reasonable insurance a loan condition, for example comprehensive car insurance on the vehicle. Your loan documents will say if yours does.
For more on other extras, see add-ons when you buy a car on finance and GAP insurance on a car loan.
Frequently asked questions
Is mechanical breakdown insurance worth it in NZ?
Views differ. The government's Consumer Protection website says MBI is usually not worth it if you buy from a dealer for personal use, because the CGA already applies. Consumer NZ says MBI doesn't provide much more cover than the CGA. The CGA gives less protection for private sales and some business purchases. Whether it suits you depends on your circumstances. This is general information, not a recommendation.
Does the Consumer Guarantees Act cover used cars from a dealer?
Yes, if you buy for personal use. The Consumer Protection website says the car must be of acceptable quality, including lasting a reasonable time. If it isn't, you can ask the dealer for a repair, replacement or refund, whether or not you bought a warranty.
How long does the Consumer Guarantees Act cover a car for?
There's no set time limit. Consumer Protection says it depends on the car's type, age, kilometres and use.
Is MBI the same as an extended warranty?
The Commerce Commission's 2021 review said MBI bought with a car is, in most cases, an 'extended warranty' under the Fair Trading Act. It's different from a manufacturer's warranty, which comes with the car's price.
What does mechanical breakdown insurance usually not cover?
In the Commerce Commission's 2021 review, the most common reasons MBI claims were declined were that the fault wasn't covered, the problem was there before the policy started, or servicing requirements weren't met. Check whether your policy covers wear-and-tear parts, servicing items, earlier faults, claim limits and hybrid or EV batteries.
Can I cancel mechanical breakdown insurance?
The Commerce Commission's 2021 review said MBI bought with a car is, in most cases, an 'extended warranty' under the Fair Trading Act. If so, you can cancel within 5 working days of getting a copy of the agreement and get a full refund of what you paid for it. Check the cancellation section of your policy. From 5 December 2026, for loans entered into from that date, a new law lets you cancel a repayment waiver or extended warranty offered by your lender within 5 working days of receiving the disclosure statement, unless the lender reasonably requires it. This includes lender 'GAP-style' waivers. It generally doesn't cover GAP or breakdown insurance policies from an insurer, which have their own cancellation terms. Correct as at 26 September 2026.
How does the Consumer Guarantees Act apply if I buy a car privately?
It doesn't. The Consumer Guarantees Act doesn't apply to private sales.
Does MBI cover hybrid or EV batteries?
It depends on the policy. Check whether your policy covers the hybrid or EV battery, and whether a claim limit applies. Ask the insurer before you buy.
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About this guide
Embeth Limited t/a CarPow is a registered financial service provider (FSP655251). We are a broker, not a lender. Information in this guide is general and not financial advice.
Lending criteria apply. Approval not guaranteed.
Cover depends on the policy's terms, conditions, limits and exclusions.
If you have a complaint about CarPow, please contact us first. If we can't resolve it, you can go to our free, independent dispute resolution scheme: Financial Services Complaints Ltd (FSCL), member number 7632. For a complaint about a lender or insurer, contact them first, then their dispute resolution scheme.
Correct as at 26 September 2026.
Sources
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