Are Extended Car Warranties
Worth the Money?

Before I go into extended car warranties I want to clear up a few misconceptions about vehicle warranties in general.

There are some federal laws that protect consumers when it comes to what vehicle manufacturers can include in the warranties of their products.

Manufacturer's warrant their vehicles to be free of defects in material and workmanship for a certain mileage or time period.

Whether a manufacturer will honor a warranty claim depends on the vehicle owner proving proper maintenance for the vehicle. Because of this requirement it's important for vehicle owners to keep up to date maintenance records.

To find out the specifics of the warranty for your vehicle you need to refer to the warranty information provided with its manual.

Even though the specific warranty points may differ from manufacturer to manufacturer there are some aspects of vehicle warranties that apply to all of them. They are all governed by the Magnuson-Moss Act of 1972 that specifies what can and cannot be included in a warranty.

The Magnuson-Moss Act

The Magnuson-Moss Act was inacted to offer protection to consumers against unreasonable requirements pertaining to vehicle maintenance and to prevent restraint of trade violations.

Examples pertaining to lubricants include:

Any lubricant meeting viscosity and performance specifications may be used. Vehicle manufacturers describe lubricants by their viscosity grade and service recommendations, which are defined by the Tripartite Committee, composed of the American Petroleum Institute, the Society of Automotive Engineers and the American Society of Testing and Materials. Any brand of lubricant meeting these specifications may be used by the consumer.

The vehicle manufacturer may not specify by brand name the products you may use in your vehicle. The Magnuson-Moss Act is a federal law which states that a manufacturer may not require the use of a specific brand of aftermarket product, including lubricants, unless the part is provided by the manufacturer free of charge. To do otherwise constitutes an infrigment upon free trade.

Cause of failure is paramount to a warranty claim. Manufacturers warrant their products to be free of defects in material or workmanship. In order to avoid paying a warranty claim, a vehicle manufacturer must show a failure is not due to a defect in the manufacture or workmanship of their product. They may not arbitrarily blame a failure on the consumers practice of changing oil at extended intervals for example.

Verbal notification of refusal to honor a claim is not sufficient. The refusal must be in writing and must state the specific reason a claim is refused. If you have filed a warranty claim and believe a failure has been caused by a defect in material or workmanship despite your claim being denied, you can contact the manufacturer's customer complaint department for resolution.

Extended Car Warranties

They are really a service contract between you and a particular company that is usually financilly backed by an insurance company. The terms included in the contract are specific to each particular contract and often are dictated by the particular circumstances related to the vehicle and individual specified in the contract.

When purchased from a reputable company they can offer added protection against mechanical breakdowns beyond the original manufacturers warranty and often provide other benefits.

Extended car warranty coverages vary from provider to provider. There are many levels of coverage available and it's important to read any extended car warranty you are considering. It's important to have some knowledge about the following types of coverage available.

Types of Extended Car Warranties

Bumper to Bumper coverage is basically "full coverage" and is usually the highest level of coverage made available by a particular company.

Most consumers think this covers everything that could go wrong with the vehicle except for regular maintenance such as oil changes and other routine maintenance procedures. Most of the time an extended car warranty contract won't list all of the components the "Bumper to Bumper" coverage protects.

Instead, it will list the things it doesn't cover, or the parts that fit into the category of regular maintenance and wear. If you are unsure if a particular plans falls into the category of "bumper to bumper" ask for specific details. Don't be misled by vague language about what is covered.

A stated plan, or stated coverage, usually applies to used cars. A stated plan will list all of the components that it covers. Often a stated plan looks as complete as "bumper to bumper" because it contains a long list of items, so don't get the two confused.

"Stated Plans" are not nearly as comprehensive. They do however normally cover the major mechanical components of a vehicle.

Power Train Protection Plans (sometimes called drivetrain plans) cover the most expensive parts of your car. This type of car warranty is designed to protect you from breakdown to your engine, transmission, transfer case, drive axle, and seals and gaskets.

This coverage is ideal for older, or higher mileage, vehicles where you are more worried about major mechanical failures.

Wrap Coverage is usually availabe only for new vehicles with less than 12,000 miles and is designed to add to a particular existing coverage.

For example, your car has powertrain coverage for 10 years or 100,000 miles, whichever comes first. The "Wrap coverage would take your existing powertrain protection and "wrap" all other components of your vehicle around it.

This would result in "bumper to bumper" protection for 10 years or 100,000 miles whichever comes first.

Be sure any Extended Car Warranty contains some form of the following points.

It is backed by a reputable insurance company with a high rating.

Has a money back guarantee. Be sure there is a review period. Usually this will be a 30 day period in which you are able to review the policy and be sure it's exactly what you want and need. During this 30 day period you can cancel the contract for a full refund.

Has a low deductible option, especially if it is a long term plan. Over a long term a high deductible will cost you more if you have to use it very often. You can go with higher deductibles with shorter plans.

The more things the plan covers the more likely you will use it. The more you use it the lower your deductible should be. Just be aware that low deductibles usually result in a more expensive policy overall.

You have to weigh the cost of the policy against the possible savings of using it frequently.

It is transferable. A Transferable extended car warranty gives you the option of transferring the warranty when you sell it or even give it away. This will usually be worth some money at resale because cars with current warranties are considered more valuable.

Has a pro-ratable clause allows you to receive a refund based on the amount of time or mileage you have left on your contract should you choose to cancel it at some time in the future.

Pro-ration gives you the opportunity to get out of your contract with a refund. You can usually receive the refund by check, or put it toward a new vehicle service contract.

Has additional benefits. Many extended car warranties have additional benefits included. Be sure to look over the contract carefully to determine any extra benefits available.

Pays the repair facility directly. One of the reasons you are considering an extended car warranty in the first place is to eliminate the hassle of dealing with a repair company.

Many repair shops have special rates reserved for companies that offer extended warranties and most warranty companies have repair facilities they recommend for service and that they pay directly.

Has payment plan options. Extended car warranties can be expensive. If you can't afford to pay up front, see if there are any payment options available. Many extended auto warranty plans now come with zero percent financing.

You also need to know what will happen if you have a claim and you haven't finished paying off the plan yet. Some warranty companies will only pay a claim up to the amount you have put into it so far.

Does the dealer offer the best extended car warranty for me?

Dealers often sell third party warranties and some represent them as extended plans directly from the manufacturer. Because many consumers believe these are actually extended plans from the manufacturer the dealer will mark them up and the consumer will pay more for them than they should.

Before purchasing an extended car warranty from a dealer be sure and find out exactly what kind of plan it is and who administers it.

Other available benefits can include:

Road Hazard Benefits offer payment for road hazards that destroy a tire. They often limit the amount they will pay per incident. These benefits can usually be added to your auto insurance policy so be sure you're not paying extra for something you may already have.

Rental Reinbursement Benefits may be available as part of an extended car warranty when your covered vehicle is in the shop for repairs. These are also available on most auto insurance policies.

Be sure you know exactly how much you will receive towards rental reimbrsement and how soon after the claim the reimbursement begins and how long it lasts.

Trip Interruption Benefit is often built into extended auto warranties to provide you with compensation should your vehicle break down far away from home.

This benefit will compensate you for some of the money you had to spend on gas, food and lodging. To receive the money you usually have to send in receipts for the food, gas and lodging to the warranty company and they will send a check.

A Towing Benefit will pay a certain amount for towing your vehicle to a repair shop. This benefit is often available through your auto insurance policy so be sure you aren't duplicating coverage.

Lost Key Lock Out Benefit will compensate you for a portion of those costs required to get you back into your vehicle when you are locked out or lose a key and need a new one made. The limit of the benefit may differ for each particular extended car warranty provider.

How do you know if you need an extended car warranty?

The best way is to conduct a cost analysis. If history is any incication, the cost of repaing your vehicle will only increase as time passes. The problem is there's no guarantee if you buy an extended car warranty that you'll ever use it.

It's almost impossible to imagine what condition your car will be in after the manufacturer's warranty expires in 3 or 4 years after you buy it. You also don't know for sure what your financial situation will be.

Consider the following points:

With an extended warranty you have a good idea of how much you will be spending on auto repairs over a given period of time (usually the amount you paid for the warranty), and it can also give you an easy payment option.

Without the extended car warranty will you be able to pay a potentially large repair bill and make a car payment in the same month? Will you be able to afford to fix small items on your car several times a year? It's difficult to know what will happen that far ahead.

If you are meticulous with your vehicle maintenance, don't drive under severe conditions or a lot of miles per year, you may not benefit from an extended car warranty.

If, on the other hand, you never check your oil, are always behind on regular maintenance items or drive a lot of hard miles on a regular basis, an extended warranty may be a money saver for you.

Another major reason so many people have decided to purchase extended warranties is that they are frustrated and tired of dealing with auto shops.

With an extended car warranty you're hiring a professional claims department to deal directly with your repair shop. They're familiar with labor rates in your area, retail prices for parts, and they know how not to get double charged for manufacturer callbacks.

If you're ready to turn all of this over to the warranty company an extended vehicle warranty may just be your ticket.

On the negative side you may not have as many choices of repair shops because the warranty company only uses certain ones.

Who should you purchase an extended car warranty from?

There are a lot of companies selling extended car warranties so you need to consider several things before choosing one. First, make sure they are listed with the Better business Bureau and then check to see that the insurance company they are associated with is at least "A Rated" by A.M. Best.

Next, determine how long they have been in the "extended car warranty" business. The longer the better. Also, you can ask other vehicle owners you know and even some repair shops may have some info on these companies. Another thing you can do is google"extended car warranty complaints" and read the various reviews.

As this website continues to develop I will be reviewing the performance of these companies and posting them here.

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