How to Select an Extended Car Warranty
One of the most common mistakes people make when buying an extended warranty is they buy the wrong type of coverage for their vehicle. For example they buy a named component policy instead of exclusionary coverage. Another mistake many people make is overbuying coverage they will never need.
All warranties are not created equal. No matter what company you decide to go with never take a salesperson's word for what is covered under the policy and always read the fine print.
Some consumer advocates say you should avoid purchasing an extended warranty at all costs. AutoCheatSheet.com believes purchasing an extended warranty (extended service contract) is a great investment and will protect you in the case of any unforeseen high repair costs in the future.
Below you will find the most common mistakes people make when selecting a warranty, standard exclusions most warranties include, benefits good warranty companies provide, and more.
What you'll find in this section:
Common Mistakes When Selecting a Warranty?
The most common mistake car buyers make when buying an extended warranty is buying the wrong type of coverage for their new or used car.
One of the biggest mistakes consumers make when selecting an extended warranty is they don't choose the right coverage for their driving needs.
People normally find out they purchased the wrong type of coverage months or years later when the warranty doesn't cover a needed repair. All they remember is they spent a lot of money on a policy that doesn't cover anything on their vehicle.
These people will file complaints, turn to social media, and bash the warranty company immediately. The truth is they made an impulse buy and didn't do any research on the policy before buying it. Over the years, situations like this and fly-by-night companies have given the warranty industry a black eye.
Why Consumers Buy the Wrong Auto Warranty:
- Purchased named component coverage instead of an exclusionary coverage.
- Bought the warranty because it was the cheapest price. Cheapest doesn't necessarily mean the best coverage for you.
- Decided to buy an auto warranty based on what the brochure stated and never read the actual contract. A warranty brochure is not a contract.
- Did not read the warranty contract personally to find out what was covered and more importantly, what was not covered.
- Did not buy the extended warranty from a reputable company and now the company is out of business.
- Took the salesperson's word the warranty they purchased was bumper-to-bumper coverage when it was not.
Some consumer advocates say you should avoid purchasing an extended warranty at all costs. These guys most likely haven't had to shell out $3,500 for a new engine or transmission.
In my opinion purchasing an extended warranty (extended service contract) is a great investment and will protect you in the case of any unforeseen high repair costs in the future.
Never let a car dealer tell you that you must buy an extended warranty before you will be approved for a car loan.
Some unethical finance managers may tell you they can get you a better interest rate or not be able to get you approved at all unless you purchase an extended warranty or other back end products. This is not true and is one of the most common car dealer scams AutoCheatSheet.com exposes in our car dealer scams section.
To read more on how a dealer may try to manipulate you into buying an extended warranty or other backend products read my section on the most common car dealer tricks of the trade here.
What to Look for When Selecting a Warranty
When researching and comparing coverage's keep the items below in mind.
100% Money-Back Guarantee on your Extended Warranty Purchase - If you're unhappy with your extended warranty purchase for any reason and you have not filed any claims. You can return your purchase for a full 100% refund within 30 to 60 days.
A Brochure or a Pamphlet is NOT an Auto Warranty Contract - Do not base your buying decision of an extended warranty plan from the information provided in the companies' brochure or pamphlet.
You should always read the actual auto warranty contract to review the terms and conditions of the plan before making any decisions to buy. Find the section on the contract of what is covered or better yet, what's not covered by the warranty.
What's the Deductible - Some companies will let you choose the amount of deductible you would like to pay, the more the deductible the less overall cost for the warranty.
By paying a small charge at the time of purchase you can avoid the hassle of a deductible altogether by paying a little more and selecting coverage with a $0 deductible.
Deductible per repair visit vs. repaired item - You have to be careful with some auto warranty companies; they will charge you a deductible for every "repair item" instead of every "repair visit."
Repair visit means you only pay the deductible one time and you can have as many covered repair items fixed during your visit.
A Repair item deductible means if you have a $100 deductible and have 3 covered repair items fixed. You will have to pay $300 to get your car out of service.
Real Bumper-to-Bumper Coverage Extended Auto Warranty - If an extended warranty list the items that are covered by the policy it is a "named component" or "inclusionary" and is not a true bumper-to-bumper plan.
A true bumper-to-bumper plan is exclusionary; it will only list a few components that are not covered by the plan. These types of components are usually maintenance items, wear and tear items, and cosmetic items.
Mechanical Breakdown and Wear & Tear Coverage - Many extended warranties will only cover repairs caused by mechanical breakdowns. Auto warranties that have wear and tear protection means you will be covered for parts that break down due to wear and tear. Any covered parts in an auto warranty should have a "Wear and Tear Provision."
Also be aware of extended warranty companies who add "Wear and Tear Exclusions" within their plans. These exclusions can be for such items as piston rings, struts, valves or other expensive mechanical components that will wear out over time and not be covered by the warranty.
Proceed with caution when dealing with these types of extended warranty plans. Make sure you understand exactly what the policy covers.
Over-Heating and Specialty Items Such as ABS Brakes - Over-heating can be a common factor of major mechanical problems when a vehicle breaks down. Make sure the auto warranty does not exclude damage caused by over-heating for any reason.
Early ABS braking systems are very expensive items to repair and replace. Avoid extended warranty plans with special clauses that exclude these types and other types of coverage's.
What type of warranty should you buy? Read my auto warranty selection process to help make sure you buy the right coverage for your driving needs.
Vehicle Repairs can be Completed at Any ASE Certified Repair Facility - ASE is the abbreviation for "Automotive Service Excellence". Some auto warranties will only pay for repairs if you take the vehicle to the repair shops they recommend, like the dealership you purchased the vehicle from. This isn't so bad unless the dealer ends up going bankrupt or out of business
Look for an auto warranty plan that allows you to choose where you get your vehicle repaired as long as it's an ASE certified repair facility.
Don't Overpay for Coverage, Buy Extended Warranties From the Source - Most online automotive extended warranties are cheaper and more affordable than what car dealers charge. Also the extended warranties these online companies offer are more comprehensive and provide more benefits than what a dealer has to offer.
After reviewing many online warranty companies available on the internet, AutoCheatSheet.com recommends Autopom! and Endurance Vehicle Protection. Arming yourself with quotes from these two companies is a good starting point. Even if you choose not to go with either of these companies you can still use the quotes to negotiate a better price with a dealership.
Warranty Companies that will Pay the Repair Facility Directly - Find out if the warranty company pays the repair facility directly. Some auto warranty companies will make you pay for your repairs first and then have you file a claim with them. They will then drag their feet or make excuses, trying to get out of refunding you the money you've already paid for the repairs.
Coverage that Takes Affect the Day You Purchase it - Most extended warranties, especially the plans car dealers sell, start the day you buy the vehicle or at mile zero.
This means if you buy a 5 year - 50,000 mile extended warranty at the time you purchase your new car, and you have a factory warranty of 3 years - 36,000 miles, your extended warranty really only covers you for 2 more years or 14,000 miles. Look for an auto warranty that starts the day you buy it and the current mileage on the vehicle.
Is the Warranty Transferable - Some extended warranty companies will cancel your coverage as soon as you sell or trade the vehicle. By choosing coverage that's transferable from one owner to another, you'll be able to increase the value of your car to prospective buyers when you decide to sell it.
The Auto Warranty Administrator is Well Funded and Insured - A Warranty Administrator is the company responsible for paying any of your claims; this is not always the company you purchased your warranty from. You will want to look for administrators who deposit some of your warranties purchase price into a type of "Claims Reserve Account" to make sure there are funds to pay any future covered claims.
Re-insurers should Have Great Ratings and are Financially Stable - Reinsurance is insurance purchased by the extended warranty company. If the company goes under because of excessive claims, the re-insurance company will step in to provide relief.
You Don't Have to Buy an Extended Auto Warranty at the Time You Buy a Vehicle - Don't let a car dealer tell you that you have to buy an extended warranty at the time you purchase a vehicle. Most companies will allow you to purchase at anytime. Keep in mind, the longer you wait, the older your vehicle gets and the more miles you will put on your car.
The older your car gets and the more miles it has will actually increase the price you'll pay for coverage. If you're wanting to purchase an extended warranty it's actually better on your pocket to buy one sooner than later.
Benefits Good Extended Auto Warranty Coverage Will Include
There are some other added benefits you should look for that some auto extended warranty companies provide to their customers. These benefits can prove to be very handy if you're unfortunate enough to have a major mechanical breakdown at the most inconvenient time.
Nationwide Roadside Assistance Coverage - Look to see if the auto warranty plan offers nationwide roadside assistance coverage for free. You also want to check to make sure the plan covers "per occurrence" and not an out-of-pocket reimbursement plan that only repays you to covered repairs.
Review the roadside assistance plan also; some plans cover items like emergency tire service, lockout service, fuel delivery, battery service and more.
Car Rental Coverage - If your vehicle must remain in a repair facility overnight, you will want to take advantage of car rental coverage. Look for this type of coverage while researching auto warranty plans.
Keep in mind there may be limitations on how much money you will be reimbursed per day and how long you're able to keep a rental vehicle. Good thing is, if you have rental reimbursement coverage you'll have a car to drive while yours is in the shop being repaired.
Nationwide Repair Facility Coverage - Look to make sure you're able to take your vehicle to any ASE certified repair facility in the U.S. or Canada. The last thing you want to happen is your vehicle breaks down and you're 1,000 miles from home.
Contract Renewals or Continuations - Look for provisions that may be offered by the warranty company so you can renew or continue your auto warranty contract for one year terms as long as you still own the vehicle.
Trip Interruption Coverage - Look for included trip interruption coverage. If your vehicle breaks down more than a certain mileage from your home and the repair is covered, you'll be reimbursed for your meals and lodging. Check your contract for daily food and lodging amount restrictions that may be required.
Toll Free Phone Number Available 24 Hours a Day 365 Days a Year Service - Unfortunately when your vehicle decides to break down it will most likely not be during normal business hours.
The company should be easily accessible with a toll free number and provide service 24 hours a day 365 days a year.
Emergency Towing Coverage and Reimbursement - Look for towing coverage and reimbursement. Some extended warranty companies tend to leave out this item. Tow fees can be surprisingly high if you find yourself broke down in the middle of nowhere.
Common Standard Exclusions Found in Warranties
There are certain exclusions that you will find in most extended auto warranties. These types of exclusions are standard; you will find them in most, if not all warranty plans.
Extended Auto Warranty Standard Exclusions
|Brake Pads||Light Bulbs||Exhaust Systems||Chrome|
|Brake Drums||Sealed Beams||Dash Pads||Headlamps|
|Brake Rotors||Moldings||Windshield Wipers||Shock Absorbers|
Before buying a warranty from any company, always review the actual warranty contract (not the brochure or pamphlet). Keep your eyes out for any sneaky exclusions and clauses that may keep the warranty from paying on a future claim.
Reputable online warranty companies such as Autopom! provide you with the items they cover right on their website so you can review them before you purchase.
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My Recommended Sites for Car Shopping
Autopom! 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.