Extended Auto Warranty - An Industry Insider's Guide

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Extended Auto Warranty - An Industry Insider's Guide
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Learn if you should buy one, when to buy, who to buy from, what questions you need to ask and how much you should pay from a former industry insider. Don't miss the comparison chart at the end of this guide.

1.  What is an extended warranty?  An extended warranty is a contract that you purchase to protect yourself from costly repairs after your factory warranty has ended.  Please note that this is not a replacement, or a mirror of, the factory warranty.  Also, there is no such thing as a "bumper to bumper" extended warranty.  "Bumper to bumper" implies everything is covered.  It's not.  Ask the salesperson if there are any exceptions.  There will be, guaranteed!  Why waste your time with people who are trying to trick you right out of the box?

There are no "standard" contracts.  You will need to read the contract and ask questions about anything you do not understand. You will be amazed at the number of companies that will refuse to give you a copy of their contract prior to purchase. 

    • Rule 1:  Beware and raise your red flag when you hear the term "bumper to bumper" from an extended warranty salesperson.  Do not do business with any company that refuses to give you a copy of the contract before you give them your hard earned any money.  Look for short (1 or 2 page) contracts that keep it simple. Auto Service Warranty is one company that I know, who is more than happy to email you a copy of their contract with absolutely no committment on your part.  They have friendly operators who answer questions and don't believe in high pressure sales tactics.

2.  Do you need an extended warranty?  A good extended warranty is a convenience that can save you money and bring you peace of mind.  It can be a godsend for anyone on a budget and is practical for owners who tend to keep their vehicles long after the factory warranty has ended. 

The peace of mind comes from knowing that you will not be hit with a huge repair bill the week before Christmas.   Lastly, considering that repair bills costing thousands of dollars are not unheard of in this market, perhaps the real question is, can you afford not to have one?

3.  Who should not buy an extended warranty?  Extended warranties are a waste of money for lazy owners. Timely vehicle maintenance is a demand of any reputable warranty company.  So, if little Joe Jr. is heading off to college and you have the slightest suspicion that he might skip an oil change or spend the bucks you send for brake pads on beer, don't waste your money on an extended warranty.  It's also important to keep records, so when a claim is filed maintenance of the vehicle is never an issue.

4.  Who should you buy from?  In the warranty business, there are brokers, warranty administrators and direct providers.  A warranty administrator is the company responsible for paying your claims.  A broker is a company that sells you a warranty and then "farms" the deal out to an outside administrator.  A direct provider does both.

Understanding the difference is important.  First, it is almost impossible to research the claims handling history of a broker since they don't pay claims.  Second, brokers often need the services of an outside administrator because their own company does not have the financial assets to back up their claims.  Lastly, common sense should tell you that you will receive much better service when your contact for claims is the same company that sold you the warranty.  Remember, the average consumer buys many cars during a lifetime and good companies depend on the repeat purchases of happy customers and the referrals of friends and family members.  Brokers won't be worried about you after your contract is signed because you will be someone else's problem before the ink dries.

    • Rule 2:  Buy from an experienced, direct provider warranty company, never a broker.  Auto Service Warranty, Inc. meets all of these requirements; they also offer a no-hassle, no pressure free quote online in seconds.

5.  How about buying from the dealership?  Salespeople aren't the only ones working on commission at many dealerships.  The finance guy and the service manager also often have a commission motivation to sell you a warranty.  They will even offer to wrap the price of the warranty into your loan.   What a deal!  You won't only be paying multiple commissions; you'll be paying them at 6 to 10% interest for years!  That is why it is not unusual for a dealership's extended warranty to cost two to three times more than one you can purchase directly from a warranty company.

6.  Where should you go to find a direct provider or full-service warranty company?  You'll find the best deals online.  Just type "extended auto warranties" in your search toolbar.  Next, look at the names, web addresses and blurbs in order to begin eliminating brokers and tricksters and identifying full-service warranty companies.  Don't waste time on sites that promise to offer you multiple quotes or teach you how to avoid scams.  No matter what information you provide, those sites will direct you to their site and teach you only what they want you to know.  Lastly, eliminate any company that promises unlimited mileage coverage.  Common sense rules here.

    • Rule 3:  Identify two or three direct providers with experience.  Compare apples to apples.   

7.  What about an extended warranty for a used vehicle?  No problem.  Again, the best time to buy is when the mileage and age are at their lowest.  However, here's an industry rule of thumb that you will want to consider prior to purchasing your used vehicle.  Any reputable company that plans to stay in the business, wants your warranty to end before that vehicle has reached 10 years of age and/or about 100,000 miles.  Breaking this rule regularly will lead them into bankruptcy.   Again, beware of any company that promises much more than common sense can deliver.

Also, don't forget to discuss the maintenance with the prior owner and ask for the maintenance records. No records?  Just be honest about your knowledge of the vehicle's history with the warranty company.  The good ones will try to work with you.

Lastly, you cannot make comparisons by just visiting web-sites.  There are often understandable surcharges for certain makes, models, 4 wheel drive, turbo engines, 1/2 ton trucks, etc.  So, you will need to speak with someone in order to get an official quote.

8.  What types of warranties are available?  There are Powertrain warranties that only cover the engine, transmission and drivetrain.  Since the average vehicle contains thousands of parts that are not covered, the Powertrain warranty is not a great value, even though is is most often the least expensive.  There are also Breakdown warranties.  These only cover breakage, no wear and tear items.  There are also warranties that list everything that is covered and others that list only what is not covered. Whichever you choose, you will want to ask about a wear and tear clause.  That means that the warranty will pay for worn parts that need to be replaced.  This is superior since not replacing a known worn part is not only dangerous, but will likely result in a more costly repair down the road. 

    • Rule 4:  Purchase a comprehensive warranty that includes wear and tear coverage.  Look for a wide range of comprehensive warranties at the best prices online such as Auto Service Warranty.

9.  What comparisons and decisions should you be prepared to make?  First, find out what kind of contract each company is willing to offer you.  Generally, you will be comparing time, mileage, deductibles and price. But, you need to compare other factors too.  For example, are you being offered "add-on" miles or "total"?  Often, you will find the high mileage contracts are based on total miles.  "Add-on" miles refer to mileage the contract will offer you in addition to your current mileage.  Both are acceptable, as long as you are clear on what you are actually paying for.

Let's say that you don't plan to keep the vehicle very long.  In that case, ask for a quote with fewer miles and/or less time and be sure to ask if the warranty is transferable since a warranty can be a good selling feature if you decide to sell the vehicle on your own.   All of Auto Service Warranty's contracts are transferable.

10.  When should you buy an extended warranty?  The best time to buy is while your vehicle is still covered by the factory warranty.  It's a lot like life insurance.  You wouldn't wait until you're 85 to buy it and expect a bargain, would you?

Naturally, the cost of a warranty rises as the vehicle ages and the mileage increases.  You will be offered the longest term and lowest rates for newer vehicles with lower mileage.  And, no, you will not be paying for double coverage.  The new coverage is an extension and the factory coverage that you have left should be factored into the quote.  

    • Rule 5:  Purchase your extended warranty early, at the very least 30 days prior to your factory warranty ending and as soon as possible on a used vehicle.

11.  What are the risks of waiting to buy your extended warranty?  As your mileage increases, the cost of an extended warranty increases.  Labor rates are also constantly rising.  Also, with time, more repair data becomes available to the actuaries who set the rates.  As a result, many vehicles, especially high-line models, are placed into higher rate classes.  However, once you buy, your contract should guarantee that your class will never change.

12.  Will my vehicle be inspected?  Some companies inspect every vehicle.  Others rarely inspect.  The best companies conduct random inspections on 10 -20% of the vehicles they cover at no charge to you.  This is good because inspections are expensive and the money saved by conducting fewer can be passed on to you.  However, in order to protect themselves from covering a disabled vehicle, your coverage may not take effect for 30 days and/or 1,000 miles or both.  If, for some reason, a wait period doesn't work for you, don't hesitate to ask what other options are available.  Again, good companies will work with you.

    • Rule 6:  Look for a company that conducts random inspections and never pay for an inspection unless you are asking the company to waive a waiting period.  Even then, ask them to pay for it if your vehicle passes.

13.  What about the deductible?  Most companies offer deals to "buy down" the deductible.  Perhaps you can pay $500 to change from a $100 deductible to a zero deductible.  In that case, you save money if the vehicle is repaired less than 5 times.  However, if a company is offering you a zero deductible for a fee of $200 up front, then you will save money if the car is repaired more than twice.  That's a better deal.  Lastly, be sure to ask if the deductible applies to each "repair" or each "visit".  A per repair deductible means that if your mechanic find three problems during one visit and your deductible is $200, you will be charged $600.  That is simply a rip-off.  Most good companies will include roadside assistance, towing and rental car reimbursements.  That's a basic package and all you really need.  Auto Service Warranty offers you per visit contracts and inexpensive zero deductible packages.

    • Rule 7:  Hang up on any company trying to sell you a "per repair" deductible.

14.  What about parts and labor and qualified repair facilities?  Many companies will only pay what is known as "reasonable" or "standard" rates for parts and labor.  That means that if your mechanic charges $85 per hour and the contract's "reasonable" is listed at $55, you pay the difference.  That doesn't sound very reasonable to me.

Also, choose a company that allows you to go to the repair facility of your choice, including the dealership.  You're not looking for an HMO warranty, are you?  Of course, you do understand that "your choice" does not include your brother-in-law's driveway.  Auto Service Warranty pays all parts and labor at 100% with a company credit card to the repair facility of your choice.

15.  How are claims paid?  Some companies ask you to pay and wait for reimbursement.  Others pay promptly with a corporate credit card.  No brainer, right?

    • Rule 8:  Search until you find a company that pays all parts and all labor, allows you to go to the repair facility of your choice and pays with a company credit card.

16.  How much should you pay?  The simple answer is the least amount possible for a great deal.  Read the contract.  Fill out the comparison chart located at the end of this guide and follow the rules.  When you understand exactly what you are purchasing, then and only then, should you choose the program that best fits your needs for the least amount of money.  And please know that this is one business where paying more doesn't necessarily mean you are getting more.  Paying more usually means you are getting chumped!

    • Rule 9:  Ask questions.  Insist on specific answers.  Do your best to compare apples to apples.  Don't make a decision until you have filled the comparison chart out completely.

17.  Can I finance an extended warranty?  Absolutely.  All of the reputable companies have finance plans.  A 25% down-payment is usually required and then you can make payments over a 6 to t12 month period.  You do need to realize that any claims will be deducted from your balance until your contract is paid in full.  That protects the company from buying you a new engine after two payments and never hearing from you again.  You should also demand zero interest and zero fees.  

    • Rule 10:  Insist on 0% interest-free financing too, and refuse to pay any silly monthly handling fees. 

18.  Comparison Chart:  Fill in the information and/or answer yes or no to questions below:

  • Direct Provider / Full-service Warranty Company?
  • Comprehensive Plan?               
  • Transferable?                                             
  • Includes Wear & Tear?                                
  • Parts & Labor Paid at 100% ?                    
  • You Choose the Repair Facility?               
  • Per Visit Deductible?                                  
  • Claims Paid with Corp. Credit Card?         
  • Free and/or Random Inspection?                
  • Zero Interest and Zero Fee Financing?  
  • Name of Company: ______________
  • Effective Date:  ___________
  • Miles:  _____
  • Add-on or Total:  __________
  • Months:  _____
  • Deductible:  ______
  • Price with Deductible:           _______
  • Price with Zero Deductible:  _______

You'll know you have found a good company and a great deal when the first 10 questions above are answered "yes".  Then, choose the best fit for you regarding months, mileage and deductible at the lowest price.  Happy hunting....

P.S. I discovered one of the best payment plans online with total coverage is at Auto Service Warranty, Inc.  Call them toll free at 800-903-4592 to see if they are a good fit for you.  Hope you save a lot of money.  Drive safely and please leave your feedback by voting whether or not this was helpful to you. 










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