5 Extended Warranty Tips

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­The average new car costs over $25,600. With that cost, owners expect trouble-free operation and longer vehicle life. So why are many turning to extended warranty plans? The answer is simple: they want to protect their investment.

Extended warranties have been called "health insurance for the engine." In fact, extended warranties are nothing more than extended service plans, similar to automobile insurance in many ways. You pay money up front to avoid paying considerably more money at the time of the repair. As with insurance, you get what you pay for, and sometimes paying less means not getting the coverage you need.

In this article, we'll run through some simple tips you should keep in mind when considering an extended warranty.

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1. Decide Whether You Really Need It

­Most manufacturers offer at least 3-year/36,000-mile bumper-to-bumper protection on their new products. In addition, many offer extended warranty coverage on e­ngine and powertrain components and limited warranties on certified used cars. In most cases, 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, then an extended service plan might offer the kind of security you are looking for.

According to Ann Tomlanovich at DaimlerChrysler, "many consumers choose to purchase extended bumper-to-bumper warranties to match Dodge's free 7-year/70,000-mile extended warranty plan. This guarantees that consumers won't have to pay for repairs for at least seven years or 70,000 miles." Tomlanovich also went on to state that roughly 30 percent of consumers are purchasing extended warranties-up considerably from past years.

Keep in mind that it is less expensive to purchase the plan while the vehicle is still 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 considerably 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. Consumers also need to look into the reliability history of their automobile. Some models with higher-than-average repair histories might necessitate an extended warranty. Also, consider the cost of parts. Many domestic models have repair costs that are half that of imported models, making an extended warranty appealing to owners of foreign cars.

2. Choose a Provider

­There are three basic organizations that offer extended warranties: automobile manufacturers, new and used car dealerships, and independent companies or third parties. As usual, it is up to the consumer to decide which is best for their circumstances, but here are a few of the pros and cons of each provider.


  • Pros: Factory-backed dealer repair network nationwide. No haggling about repair, price, or components.
  • Cons: Highest upfront costs, and dealer network might be limited in your area.


  • Pros: Lower up-front cost: buy plan and service car at the same place.
  • Cons:Usually only one service point. If they can't fix it, who do you call?


  • Pros: Lowest cost (usually between 30-50 percent less than manufacturer plans), most coverage choices, dealers, or local repair shops. Third-party warranty programs are usually their only business.
  • Cons: Repair shop coverage might not be as promised. Some are "here today, gone tomorrow" companies.

3. Know What to Watch Out For

Regardless of the provider you choose there are a number of things to look for and look out for. Consumers can be overwhelmed by the dizzying array of plans available. If you do a little homework, it is quite easy to 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. Many consumers balk at this. However, you wouldn't expect a provider to pay for a shoddy repair that they have to fix again in several months. In the long run, they are going to use the least-expensive part available that offers reliable service.

According to David Tryansky of 1 Source Auto Warranty, consumers should check that, "all programs are insured and reinsured, and that the company offering the plan will continue to pay claims for the life of the contract." This might be the most important thing to look for in a provider. The last thing you need to do is 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 by the Better Business Bureau, Standard and Poors, or A.M. Best.

4. Select the Right Plan

­­Do you want bumper-to-bumper coverage? This is the most expensive up front option, but it 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. You should also check to make sure that the plan is renewable and transferable to a new owner.

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. You should also check to make sure that the plan is renewable and transferable to a new owner.

Read the fine print of the plan. What is covered and what isn't? Where can you have the repairs performed? 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 your needs.

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.

Finally, call the customer-service number. See how long the wait time is before you talk to a claims adjuster. Note their demeanor and willingness to discuss the plan. If you purchase from that company you will have to deal with these people in resolving repair issues.

5. Know the Bottom Line

­Like all services, you get what you pay for in extended warranties. If you look for the most inexpensive plan out there, you probably aren't getting the cov­erage you need. But paying more isn't necessarily better. You have to read the fine print, make sure your needs are met, and feel confident that the plan will be there to protect you when repairs arise.

Don't be pressured into a plan at a dealership. You can always come back and buy the plan another day. Some dealerships force people to take extended warranties if they want to get financing. While not illegal, this usually indicates that the dealer's business practices are less than above board. In these situations, you should probably seek out a different dealer. In the worst case, you can always get your financing through local banks.

The decision to buy an extended warranty comes down to your comfort level. If you don't like dealing with mechanics, are worried that you might not have the cash to cover expensive repairs, or can't do without transportation for even a day, then an extended warranty might be for you. On the other hand, if you have discretionary income, are comfortable with your mechanic, or have alternative transportation, perhaps it is best to invest your money elsewhere.

In the end it is up to the consumer. A car or truck is a big investment and extended warranties don't come cheap. Buyers need to be aware of all their options and keep an open mind when shopping. Extended warranties offer a comfort level that some people don't mind paying for. Just remember that the companies offering the extended warranties are businesses and wouldn't offer the plans if they didn't make money on them.

For more information on extended warranties and related topics, check out the links on the next page.

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