An extended warranty is an agreement between the car owner and warranty company, obligating the warranty company to pay for repairs covered by the contract for a specific period of time.
With an extended auto warranty you are protecting yourself from the unexpected cost of mechanical failure.
One major repair often ends up costing as much, or even more than the entire cost of the warranty. As a consumer, you can only accurately understand the coverage if you learn the terminology and standard industry requirements. The levels of coverage offered
differ considerably from company to company. Most states (36) do not regulate the coverage, and there is quite often jargon and restrictive language buried in the contract.
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Know what's covered -- and what's not covered -- by the
extended auto warranty
you're considering. Does the contract cover breakdown as well as wear and tear? Under a "breakdown" warranty, coverage is extended only to parts that break. Such an extended auto warranty can prove less inclusive than is desirable, since not all parts fail due to breakage. Some need to be replaced because they've worn down over a period of time; a "wear-and-tear" warranty extends coverage to worn-down parts in need of replacement.
Additionally, some
extended auto warranties
do not cover TSB’s. A Technical Service Bulletin (TSB) or Factory Service Bulletin is a notification by the manufacturer that a condition may exist on your vehicle. Sometimes there is a problem requiring immediate attention; often they are issued to facilitate a quicker diagnosis or repair procedures from your repair facility. It is common for a vehicle to have dozens of TSBs issued. Most companies will deny any claim related to a TSB. This is a huge coverage loophole. Additionally, ABS brakes, so if your vehicle has this feature, you should consider upgrading to a higher coverage level (if available). And overheating -- regardless of its cause -- isn't covered in many car warranties. Thus, if overheating occurred due to problems with an expensive part such as your radiator, you'd be stuck with a hefty repair bill.
Before committing to an extended auto warranty, take the time to fully explore the ins and outs of its coverage implications. The distinctions between the various plans might seem slight, but they can prove quite important.
A common misconception is that by waiting to purchase
extended coverage,
you will get coverage for a longer time. While you can purchase your coverage at almost anytime, the cost for coverage rises as your vehicle ages and accrues mileage. In other words, you will be offered the longest term at the lowest rate for a new vehicle. Even if you have a warranty from the manufacturer, extended warranty coverage is simply an extension of that… not double coverage. The manufacturer’s warranty has been factored into your price quote. The more factory warranty you have remaining, the lower the cost and greater the length of the warranty extension.
For an extended warranty you may be offered coverage for up to 7 years for a new vehicle. If the vehicle is a year old, you may be offered coverage for up to 6 years and the rate will be higher. Two years old, coverage may be offered up to 5 years and so on. Waiting does not provide you with a longer warranty; it serves to increase costs, much like life insurance. If you buy an extension to 100,000 miles today or in 2 years, it will still expire at 100,000 miles.
Waiting also carries other risks. Coverage costs rise as repair rates do. In the last 3 years, the average labor rate has increased by $20 per hour. Also, as more repair data becomes available for your vehicle, its costs may also rise. In essence you can lock into low prices the sooner you get covered.
Named Component Warranty:
Covers the major mechanical systems of the vehicle from mechanical breakdown and mechanical failure. If the part is not listed, it's not covered by the contract.
NOTE: ***Some companies sell the same or similar plans as above, and use the term bumper-to-bumper. This can be misleading because it is always an inferior level of coverage.
Consumable items, such as brake pads or windshield wipers, are never covered. Roadside assistance and travel reimbursement plans are typically offered as part of the extended auto warranty package; even while the basic warranty is still in effect. Some even offer free lodging and meals if your vehicle breaks down on a trip.
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