Extended Auto Warranty Industry Definitions
Shopping for an extended auto warranty can be confusing. Not understanding the terminology used in the warranty industry does not make it any easier.
In this section of AutoCheatSheet.com I break down the most common terms used in the industry.
Familiarizing yourself with these terms will help you better understand how to research, review and select a good quality extended warranty that fits perfect with your current driving needs.
On top of being different prices and terms, they have different names such as exclusive, inclusive, powertrain, etc. Our warranty glossary below will help you make sense of this information.
Visit my section on How to Buy an Extended Auto Warranty to learn everything you ever wanted to know about extended service policies but didn't know who to ask.
Familiarize yourself with all the terms or jump to a section below:
Definitions of Industry Terms
"A" Rated - An industry term used to describe the highest rating an extended warranty company can receive.
Administrator - The company that will authorize and pay the repair facility that did the covered repair work on your vehicle. The administrator will work with the repair shop to insure your vehicle is properly repaired in accordance with your policy.
A.M. Best - A.M. Best is over 100 years old, they provide analysis and ratings for 7,000+ insurance companies. Their ratings system has become the standard measurement of an insurance company's financial standing.
Authorized or Authorization - The approval an administrator gives before repairs can be started on a vehicle.
Auto Warranty or Automotive Warranty - The actual policy that provides coverage against mechanical breakdowns and failures. Also known as extended service agreement, extended service contract, new car warranty, used car warranty, vehicle service agreement, mechanical breakdown agreement or extended warranty. This type of policy will pay for covered repairs based on the terms and conditions of the auto warranty agreement.
BBB or Better Business Bureau - The Better Business Bureau is an independent company that provides a record of a company's complaint handling history.
Bumper-to-Bumper - The most comprehensive coverage available to the consumer, also known as an exclusionary plan. These types of extended warranties only list the items that are NOT covered under the policy in an exclusion section on the contract. If the part or component is not listed, it will be covered under bumper-to-bumper coverage.
Cancel or Cancellation - Most policies have a cancellation clause that will allow the holder to cancel the policy within 30 to 60 days for a full refund as long as there has been no repair claims filed on the policy. If the policyholder goes past the full refund date, cancellation refunds are normally prorated based on mileage and length of time the warranty has been in place.
Corrosion Warranty - Corrosion warranties are normally issued by the manufacturer and cover a vehicle for any kind of perforation or rust on the metal body. Coverage of this nature can be purchased as an aftermarket policy and some corrosion products include a product warranty guarantee.
As with new and used car pricing, competition gets you the best price. Have companies compete online for your business. Read our article on how to get free, no-obligation extended warranty price quotes online.
Deductible - The deductible is the amount you're responsible for and must pay the repair facility when getting a covered repair completed on your vehicle. Deductibles can be required for each repairable item or each repair visit. Deductibles can also be anywhere from $0 to $250. You can normally pay a small surcharge at the time of purchasing your warranty to take advantage of a lower or no deductible if you have a covered repair.
Diagnostics - Diagnostics is tests performed on your vehicle by a repair facility to determine what the required repairs will be. Diagnostic charges can range anywhere from $40 or higher and are not typically covered by any type of extended auto warranty unless purchased as an additional option.
Eligibility - The coverage amount available on a particular vehicle based on usage and characteristics. Each plan has its own eligibility requirements; some plans offer surcharges, or riders for certain components and coverage. Eligibility is normally based on year, make and model of a vehicle; it will also include specialty items such as super charges, four-wheel-drive, or turbo. History will also play a big factor in eligibility; the quality of the manufacturer, branded titles or commercial use vehicles may not be eligible for an example.
Exclusive Warranty or Exclusionary Policy - The most comprehensive extended warranty available to consumers. Also known as a bumper-to-bumper, it only lists items that are not covered by the policy. If the item or component is not listed on the policy it will be covered by an exclusionary warranty.
Extended Auto Warranty - A policy consumers can purchase to cover mechanical breakdowns and failures of their new and used vehicle. Extended auto warranties are also known as extended service contracts, extended warranties, new car warranties, used car warranties and vehicle service agreements.
In-Service Date - The in-service date is the date the vehicle was purchased by the original owner. The in-service date can also be considered the first date the vehicle was put in service for demonstration, commercial use, rental use, business use or other purposes.
Inclusionary Warranty or Inclusionary Policy - Also known as a "Stated Component Coverage" policy. This type of warranty or policy will list all of the vehicle's components and parts that are covered by the plan. Keep in mind that if the part or component is not listed, it will NOT be covered by the warranty.
The cheapest warranty may not be the best coverage for you. Before making a costly decision, read my section on how to compare and select an extended auto warranty.
Inspection - An inspection is when you have your vehicle examined by a certified mechanic. Some companies may require an inspection on older vehicles or vehicles with higher mileage.
Insurer or Re-Insurer - The insurance company that issues the policy and guarantees the obligations of the warranty administrator. Good extended warranty companies are normally backed by another insurer to guarantee policy repair claims in the case the company defaults due to a high volume of repair claims by consumers.
Make - The manufacturer of the vehicle.
Manufacturer - The company that built the vehicle.
Manufacturer's Recommended Maintenance Guidelines - These are the guidelines set forth by the manufacturer for routine maintenance and upkeep to keep your vehicle in safe and optimal operating condition. Typical manufacturer maintenance guidelines will include changing the engine oil, checking for proper fluid levels, tire rotations and the replacement of certain parts. Not following these guidelines may void your extended auto warranty contract.
Manufacturer's Warranty or Factory Warranty - The warranty that comes with a new vehicle for a certain period of time or mileage, typically 3 years - 36,000 miles.
Model - The specific trim level of the vehicle that was made by the manufacturer.
New Vehicle - The term is used in the industry to describe a vehicle that is still covered by the original factory or manufacturer bumper-to-bumper warranty.
Odometer - Is the mechanical or digital device that keeps track of the miles driven on a vehicle. If the odometer fails, disconnected or removed, it will void the warranty. If you have the odometer replaced by a certified repair facility and it's documented by the warranty company, the warranty may still be intact.
Plan Expiration - This is the time or date an extended warranty is no longer in effect. It may be caused by the time limitation or mileage limitation.
Plan Mileage - This is the total mileage the plan will provide coverage for the vehicle.
Plan Time Limit or Term - This is the total amount of time the policy will provide coverage for the vehicle.
Powertrain Policy - Is a limited extended warranty that only covers parts of the power train such as the engine, transmission and drive train.
Product Warranty - An insurance company does not guarantee product warranties. These warranties may not be sold for a separate price and must be provided for free. A product warranty generally covers fewer parts than a mechanical breakdown warranty, extended warranty or extended service contract. A product warranty, by law, is not allowed to cover parts that come in direct contact with the product or any pars that are connected to those parts.
Ratings - Standard benchmarks used to determine companies financial security used by companies such as A.M. Best to rate insurance companies.
Re-Insurer or Re-Insurance Company - The insurance company that guarantees the obligations of the warranty provider in the case of the provider failing due to excessive repair claims.
Rental or Rental Benefit - Rental reimbursement benefits will only be paid if a covered repair disables the vehicle. Rental benefits are the amount you will be paid to acquire a rental vehicle during the time your vehicle is being repaired. Most extended warranties have limitations on the amount per day and how many days they will provide a rental vehicle.
Repair Facility - Where you get authorize covered repairs performed on your vehicle. This can include your dealership, nationally recognized repair center or local certified mechanic.
Do you really need a warranty? How much do you drive? How long do you expect to keep your car? Read our article on questions to ask yourself before buying an extended service contract.
Roadside Assistance - Included with reputable warranty plans. Roadside assistance provides assistance such as, tire repair, fluid and fuel delivery, lockout service, battery service or towing. This service is included and is available by toll free number 7 days a week - 365 days a year.
Stated Component Coverage - Also known as "Inclusionary Coverage," This type of coverage lists all the parts and components that are covered by the policy. If the part or component is not listed, then it will NOT be covered under the warranty.
Transfer or Transferable - Transferable means the extended warranty can be transferred to another person if you decide to sell your vehicle privately. This is a good way to add a little value when selling a used car, in some cases a small fee may be required.
Trip Interruption Benefit - This is reimbursement for food and lodging expenses if you have a covered breakdown during a trip. Most policies define "travel" as being over 100 miles from your home; also coverage's have daily amount limitations to cover your food and lodging expenses.
Used Vehicle - Term used to describe any vehicle in which the manufacturer's bumper-to-bumper warranty has expired.
Vehicle Identification Number (VIN) - The unique 17 digit identification number found on every over-the -road vehicle. The VIN can be found in several places on a vehicle.
To find out where the VIN can be located on a vehicle and what each character of a vehicle ID number represents, Read my chapter about vehicle identification numbers.
Wear and Tear - Wear and tear is when a part fails because of "normal operation" or "normal tolerances", instead of failing under mechanical problems. Normal maintenance items are normally not covered such as, clutch plates, brake pads, rotors, drums, wiper blades, fan belts, lenses, light bulbs, glass, etc.
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My Recommended Sites for Car Shopping
CARCHEX and Endurance Vehicle Protection are the quickest way to see what an extended warranty will cost you for the vehicle you're buying. These online sites will provide you with free, no-obligation quotes and the prices are normally pretty good. You can also use these quotes to negotiate an even better price with a dealership.
Share Your Tips - If you have any tips or information about extended auto warranty terms or definitions that will help other car buyers save money. Please tell us about it in the comments below, so we can share it with everyone.