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Extended warranties have been called "health insurance for the engine." They are extended service plans, similar to automobile insurance in many ways. You pay money up front to avoid paying more money at the time of the repair. Just like insurance, you get what you pay for, and sometimes paying less means not getting the coverage you need.
Manufacturers offer a 3-year/36,000-mile bumper-to-bumper protection on new products. Many will also offer extended warranty coverage on engine and power train components and limited warranties on certified used cars. These plans offer consumers excellent protection. But, if you drive more than 12,000 miles per year or plan to keep your vehicle for a long time, an extended service plan might be the kind of security you are looking for.
It is less expensive to purchase the plan while the vehicle is covered by the manufacturer's warranty. If you wait for the bumper-to-bumper warranty to expire before looking into and extended plan, then you will pay more. Most of these plans are self funded and insured, so the earlier you pay, the lower your rate.
If you think of an extended warranty as a security blanket then you might not mind paying money up front to avoid a large repair bill in the future.
There are three basic organizations that offer extended warranties:
• automobile manufacturers,
• new and used car dealerships, and
• independent companies or third parties.
It is up to you to decide which is best for your circumstances.
Regardless of the provider you choose there is always a number of things to look for and look out for. Separate the good plans from the clunkers. Signs of a good plan:
• Corporate credit card to pay for services
• Ability to choose dealership or independent repair shop
• Warranty is transferable
• Trip-interruption coverage
• Free loaner car
• BBB certified
Signs of a bad plan:
• Out of pocket to cover repairs
• Specific caps on repair costs
• Large numbers of exclusions
• Dealership pressure to purchase plan
• Non-transferable
• Company lacking strong track record of customer satisfaction
Most plans specify that replacement parts may be either new or remanufactured, and that the choice of those parts is at the discretion of the provider. Make sure that the company offering the plan will continue to pay claims for the life of the contract. You don’t want to pay for a plan that becomes worthless if the company goes bankrupt.
If you purchase from a dealer or from a third party make sure that you investigate the company you are purchasing from. Companies should offer a strong retail history, adequate financial reserves, and should be highly rated.
Bumper-to-bumper coverage is the most expensive up front option, but offers the most coverage. Everything on the vehicle minus exclusionary wear-and-tear items is covered, usually with a minimal deductible. Selecting higher per-repair deductibles can decrease the initial cost of the plan, but if your vehicle ends up being trouble-prone, it can be more expensive in the long run. Check to make sure that the plan is renewable and transferable to a new owner.
Read the fine print of the plan.
• You need to know what is covered and what isn't
• Where you can you have repairs done
• Do you have to pay cash up front for the repair?
Each plan is different and each provider offers a complete menu of plans to choose from. Be sure that the plan you select is right for you.
Some plans also offer perks like:
• roadside assistance,
• car rental reimbursement, and
• travel expenses, such as food and lodging, if your vehicle becomes disabled while you are on a trip.
These services can come in handy for someone who travels for business or someone who commutes long distances.