Your Guide to Extended Vehicle Warranties

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What is an extended vehicle warranty?

(Photo courtesy of wikimedia.org)

(Photo courtesy of wikimedia.org)

In essence, an extended warranty is an insurance policy for vehicle repairs, a safeguard against unexpected future expenses. An extended warranty lengthens the term of your original factory warranty and sometimes supplements it. New vehicles come with factory warranties covering defects for a few years, typically a minimum of three years or 36,000 miles, whichever occurs first.  When you buy a new vehicle, the cost of the original factory warranty is included in the dealer’s  price.

Vehicle defects covered by an original factory warranty are repaired free of charge by the manufacturer through an authorized dealership. Extended warranties provide continued protection once the factory warranty expires, and some of them also fill in certain coverage gaps in the factory warranty. Extended warranties are usually paid for upfront in a lump sum, although some companies also offer payment plans.

The best extended warranties go beyond the scope of  factory warranties to provide wear and tear coverage (see below).  A good warranty also allows repairs to be performed by any qualified repair facility, not just the authorized dealer.  Qualified repair facilities can include national auto repair centers and local mechanics as well as the manufacturer’s authorized dealerships.

What other benefits do extended warranties provide?

Extended warranties frequently provide extra perks like roadside assistance, lost key and lock-out service, car rental and trip interruption coverage, and towing benefits. Some extended warranties allow you to renew coverage for however long you continue to own the vehicle. Generally, unexpired extended warranties are transferable if you sell your vehicle to a private party. When you sell your used car, a transferrable warranty enhances both its value and its marketability.

What’s the best time to purchase an extended warranty?

Some manufacturers offer extended warranties through authorized dealerships. Generally, to get an extended warranty from the manufacturer, you must pay for it when you buy the vehicle or within a short time thereafter. Extended warranties are also offered by independent brokers after you’ve purchased your vehicle (they’re sometimes called after-market warranties) and can generally be obtained even after the factory warranty has expired.

Although you don’t have to purchase extended coverage when you buy your vehicle, the newer your vehicle and the lower its mileage, the better the warranty and the lower the price will be. As your car ages and accrues more miles, your repairs risks increase and the extended warranties available to you will have shorter terms and higher premiums. In other words, buying an extended warranty for a new car is like buying life insurance while you are still young and healthy: you have the advantage of purchasing tomorrow’s repairs at today’s prices.

What is wear-and-tear coverage?

All extended warranties cover repairs resulting from the manufacturer’s defects in parts or workmanship. Some, however, go further to provide coverage for repairs to vehicle components that break or wear out from use, whether or not they are the result of defective parts or workmanship. This wear-and tear protection provides warranty coverage for repairs needed to correct a gradual reduction in operating performance even though a mechanical breakdown has not occurred.

Many extended warranties explicitly exclude coverage for wear-and-tear repairs, but wear and tear coverage can be important, because the more miles you have on your car, the more likely it is that a needed repair will be the result of a worn out part rather than a defective one. When shopping for an extended warranty, don’t assume that every service contract will cover every repair your car will ever need. Ask questions before you buy a warranty. Read carefully and be sure you understand what is covered and what is not.

Where should I purchase an extended warranty?

Manufacturers’ extended warranties are typically more expensive than warranties offered by independent brokers; but like so many things, when it comes to extended warranties you generally get what you pay for. There are many online brokers for after market warranties, and the coverages they offer vary significantly. Some are as comprehensive as the extended warranties offered by manufacturers, but many are not.

What RED FLAGS I should I watch for?

When it comes to shopping for an extended vehicle warranty, there are so many red flags to watch for that the easiest way to proceed may be to first determine what you don’t want.  For starters, don’t let price be your overriding consideration.  A low price is usually coupled with limited coverage. Whether you buy from the dealer or shop online, below are some examples  restrictive and one-sided terms that should prompt you to look elsewhere for your warranty.

Don’t buy if:

The need for repairs is left to the sole discretion of the warranty company.

The use of used or recycled parts is allowed in the sole discretion of the warranty company.

In order for repairs to be covered, the vehicle must be strictly maintained in accordance with the manufacturer’s recommendations.

Repairs to correct a gradual reduction in operating performance are excluded from coverage.

Repairs necessitated by wear and tear as distinguished from manufacturing defects are excluded from coverage.

Repairs to worn or damaged valves, seals, gaskets, rings, pistons, or other specified wear-and-tear repair items are excluded from coverage.

Repairs necessitated by overheating, regardless of driver or owner negligence, are excluded from coverage.

The choice of repair facilities is limited or left to the sole discretion of the warranty company.

Reimbursement for labor charges is calculated according to pre-determined flat or hourly rates rather than the rates normally charged by the repair facility.

The warranty company does not pay the dealership directly and you are required to pay the  bill and wait to be reimbursed.

You are required to pay a deductible that applies to each serviced part (which can be significant if more than one part is repaired at any one visit) rather than each repair visit.

Refunds and cancellation of the warranty are not allowed or there is no provision for refunds or cancellation, or refunds are prorated from a date earlier than the purchase date of the warranty.

Transfers of the warranty are not allowed, or the warranty company charges an unreasonable fee for transfers.

Depending on the age and condition of your vehicle, you may not be able to avoid every red flag you find.  But read carefully, ask questions, and understand what you’re getting and what you’re not.  Remember, there are lots of after-market warranty companies competing for your business.  So shop around.
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