Car parts suffer wear and tear, and eventually fail. Warranties typically fail in advance. For this reason, many people consider buying an extended warranty that covers major parts and systems. If their engine or transmission dies after their original manufacturer's warranty expires, their extended coverage bridges the gap. The question is, does such an investment make sense?
This article will give you a brief introduction to extended warranties. You'll learn how they work and factors to consider before purchasing coverage. Given the costs of having major components repaired, this type of insurance policy might prove valuable.
Is Your Car Already Under Warranty?
Suppose your vehicle is two years old. It will likely be covered by the existing manufacturer's warranty (assuming the miles you've driven remain under the maximum allowed to maintain coverage). In this case, there's no need to spend money on an extended policy since most of the parts are already covered.
Now, suppose you have purchased a used vehicle. If it is several years old, you'll need to check with the dealer regarding whether coverage exists, and if so, when it expires. If the used car is only a few years old, there's a good chance the manufacturer's coverage is still in effect.
In the event a vehicle lacks warranty coverage, an extended policy may be worthwhile. This is especially true if you plan to keep the car for awhile.
Make Sure The Company Is Financially Sound
Extended warranties are offered by automakers and third parties. As you might expect, those offered by automakers tend to be more expensive. While third-party policies are less costly, the financial standing of the company offering them may be questionable. It does little good to invest in an extended policy if the underwriter is unable to pay benefits.
You can check the financial stability of a given underwriter - automakers included - with the main business credit rating agencies (e.g. A.M. Best, Dun & Bradstreet, etc.). Avoid third-party underwriters that score below an "A."
Review The Deductible
With regard to deductibles, extended warranties come in two main flavors. First, it may pose a deductible on each visit (this is preferable). Second, it may pose one on each repair. If you take your car to the repair shop to have a single task performed (e.g. replace the water pump), the difference between these two flavors is negligible. But suppose you need to have the water pump, timing belt, and alternator replaced on a single visit. With a "per repair" policy, you would need to pay the deductible on each task. This is more expensive.
Make sure you know how the deductible is handled on a given policy before purchasing it. Otherwise, you may be forced to pay much more than you had planned.
Review The Extent Of The Warranty's Coverage
Every policy is different. Some cover major assemblies, such as the engine, transmission, and suspension system, but little else. Others cover a far broader range of components, including the brakes, alternator, and fuel pump. Also, be aware that most extended warranties offer zero coverage for engine damage that results from overheating. So, if your water pump fails and causes your engine to overheat, your policy may cover the pump, but preclude the engine.
Spend time going through the extended warranty and learning what it covers. That's the best way to avoid frustrating misunderstandings down the road.
The above suggestions provide a good starting place to evaluate whether you need an extended warranty, and how to buy one that fits your needs. There are other details to keep in mind. For example, find out whether the policy can be transferred to another motorist in the event you sell your vehicle. Also, investigate whether you can have repairs performed at a local garage or if you need to take your car to a dealership. The extra coverage can be valuable, but make sure you can live with the terms.
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