Imagine the scenario: you pay your car insurance monthly, but your vehicle is written off towards the beginning of your annual policy.

You’re expecting the agreed value to land in your bank account – but what’s this? It’s fallen a long way short due to the insurer applying a chunky deduction to cover the unpaid annual premium.

People in similar circumstances who have already paid the year’s premium up front might be expecting a refund for the unused portion.

No such luck, as insurance expert Allan Manning explained in a recent blog.

It’s an issue support groups say is leading to daily calls from concerned consumers who were not expecting such an outcome, in part because insurance is usually cancellable at any time. 

“It’s something that comes up a lot with our Insurance Law Service,” Financial Rights Legal Centre director of casework Alexandra Kelly said. 

“We’re getting calls every day and it’s up there as one of our most frequently asked questions.” 

Insureds struggling to cope with the cost-of-living crisis and rising premiums are worst-affected. 

“If the value of the car is relatively small, say $5000, and $2000 gets deducted in premium, they’ll be like, ‘Oh, I didn’t factor that in,’ ” Ms Kelly said.

“When they are setting their agreed value at the start of the contract, they are not thinking about that.” 

Excesses, which have been trending upwards, are also usually deducted unless a claimant can prove they were not at fault. Insureds often struggle to then find enough money for a replacement vehicle – and if they do, they have to pay again to insure it. 

Ms Kelly says in the examples she has seen, insurers are not breaching contracts or disclosure requirements. But she believes they could be clearer about the issue – at policy inception, renewals and claims time – and that more innovation and flexibility in products would bring benefits. 

“The deductions just kill people, and they definitely don’t expect it,” she said. “From a legal disclosure point of view, for sure, it’s there. But could product disclosure statements and renewal notices be better? Yes – in order to draw people’s attention to where they need it to be. 

“There also needs to be way more innovation in insurance and there could be some better-designed products.” 

Ms Kelly says there is no reason why insurance policies must always be annual, pointing to hire car cover as an example. “Insurers could be a little bit less opaque about their premium pricing, and think about whether they have any flexibility, so consumers can choose products that are either pay by the month or pay by the week.”