| How much insurance does one need? You have the | | | | or that require a significant amount of work, will be |
| big four: home, health, life, and car insurance. Then | | | | cause for the warranty company to call in an |
| there’s a second category, which starts | | | | adjuster to confirm the diagnosis. This will delay the |
| getting a little hazy with credit card insurance, | | | | repairs by a minimum of 24-48 hours. It may cost |
| purchase protection plans, fraud insurance and more. | | | | you additional money when an adjuster is involved. |
| Extended warranties, also called extended service | | | | You may be charged to have your vehicle pulled |
| contracts, or extended service policies fall into the | | | | back into the shop for inspection, as well as for the |
| mist of this second category. | | | | time spent with the adjuster. |
| Extended warranties are supposed to pay (in full or in | | | | 4) Tear-down Charges: In many cases, an extended |
| part) for specified repairs for a specific period of | | | | warranty company will require that a particular |
| time after the expiration of the factory warranty. | | | | component be taken apart for inspection to |
| They can be a great value. They can also be a | | | | determine if the repair is indeed needed and covered. |
| significant waste of money. It gets quite foggy in the | | | | This puts the service customer in a very awkward |
| details. What exactly is covered? How long? How | | | | position. The customer will have to authorize |
| much? Are there hidden charges? | | | | potentially hundreds of dollars of tear-down expense |
| There are numerous extended warranty companies | | | | in the hopes that the repair is covered. If it’s |
| and an even wider variety of warranty packages | | | | not, the customer is out the hundreds in tear-down |
| available: silver, gold, platinum, platinum-plus, and a | | | | PLUS the actual repair. This does happen! |
| host of other confidence-building words. | | | | Common Myths: |
| What’s the best plan, and are extended | | | | 1) "Extended warranties cover maintenance services |
| service contracts worth the money? Extended | | | | and brake work." |
| warranties, like life insurance policies, are a numbers | | | | No. Extended warranty plans do not cover |
| game. They’re a gamble. You pay | | | | maintenance or wearable items. Brake pads and |
| $2500-$4500 for a 2 year, 100,000-mile protection | | | | rotors are wearable parts. Maintenance such as |
| plan and hope that you get at least that back in | | | | coolant, brake and transmission flushes, tune-ups, |
| warranty repairs. The provider on the other hand, | | | | services, oil changes, bulbs, wipers, and more are not |
| hopes to pay out less than it insured. | | | | covered. |
| There are three major types of plan providers: The | | | | 2) "They told me it’s bumper-to-bumper, so it |
| manufacturer, the dealership/third party, and third | | | | covers everything right?" |
| party providers. Each one has its assets and liabilities | | | | Wrong. Not even a factory warranty covers |
| (discussed ahead). | | | | everything. When pitching the sale for the extended |
| What exactly is covered in an extended service plan? | | | | warranty, one is very often lead to believe that he |
| As mentioned above, what’s covered | | | | or she will have nothing to worry about. This is just |
| depends on the package purchased. Some plans only | | | | not true on so many levels. For example, if your |
| cover the power train: the mechanical components of | | | | bumper falls off it’s not covered. |
| the engine, transmission, and rear-end. Others cover | | | | 3) "I don’t have to pay anything, right?" |
| the power train plus some electrical components. Still | | | | Wrong. Despite the claims of 100% coverage, there |
| others cover electrical, advanced electrical, and | | | | are many factors involved. The labor rates, labor |
| computer components. Some only cover | | | | hours, diagnostic times, parts prices, and machine |
| what’s listed in the contract. This is called a | | | | work are just a few items that often conflict with a |
| Stated or Named contract. This means | | | | service center’s policies. Some extended |
| that if it’s not stated, it’s not covered. | | | | contracts only pay a maximum of $55 per hour, and |
| Some cover bumper-to-bumper, similar to a | | | | only allow one half hour for diagnostic time. This is |
| manufacturer warranty, except trim pieces, | | | | generally unacceptable to the service center, as labor |
| upholstery, exterior components, cosmetic items, and | | | | rates have skyrocketed to over $100 per hour at |
| a number of other exclusions. | | | | many dealerships, and average $75 at local shops. |
| Never before has the adage, The devil’s in | | | | Moreover, with the complexity of today’s |
| the details, been so applicable. | | | | vehicles, diagnostic time is at a premium. The |
| Manufacturer Extended Plans: | | | | customer pays the difference. |
| Extended service plans from the manufacturer are | | | | 4) "If I have an expensive problem, I can just |
| the best in terms of coverage, convenience, and | | | | purchase an extended service contract." |
| quality. Coverage is similar to the warranty while the | | | | It’s unethical, but it’s an option many |
| vehicle was under its original factory warrantywith | | | | attempt. However, most service contracts have a |
| similar exclusions stated above. The billing is direct, | | | | minimum time requirement before the first claim can |
| meaning you don’t have to pay | | | | be filed: usually three months. Also, many contracts |
| out-of-pocket, except for a deductible, if applicable. | | | | require that your vehicle be inspected by a service |
| Quality is great too, as an extended warranty from | | | | center to check for pre-existing conditionsjust like |
| the manufacturer will only use factory parts. They | | | | life insurance. |
| also have money, so there’s less risk of | | | | 5) "My contract lasts up to 100,000 miles." |
| bankruptcy. | | | | Only if the time limit doesn’t run out first. All |
| The down side of manufacturer extended service | | | | extended warranty plans have a time limit. For |
| plans is that they are not cheap. These plans are | | | | example, a typical contract will state that the vehicle |
| generally the most expensive, require low mileage | | | | is covered for two years or 100,000 miles, which |
| standards, and necessitate servicing your vehicle at a | | | | ever comes first. During the sales pitch, however, the |
| dealer for coverage. | | | | emphasis will be on the 100,000 miles, not the time. |
| Dealership/Third Party Plans: | | | | 6) "If my car breaks, it gets fixed like new." |
| Extended warranties from a dealership are actually | | | | Actually, depending on the contract, an extended |
| from a third party insurer. These providers are | | | | warranty company can insist on installing |
| generally reputable, but not always. However, | | | | remanufactured or even used parts. |
| if there is an issue (such as the warranty provider | | | | Items commonly not covered by extended |
| filing chapter 11, which is quite frequent in the | | | | warranties: |
| extended service contract business), the dealer | | | | Any component with a pre-existing condition |
| may step in to cover any repairs that would | | | | Any component related to a Technical Service |
| have been covered under the defunct plan. Also, | | | | Bulletin (TSB) |
| claims are easier: billing is direct because the dealership | | | | Many components that has been updated by the |
| has a working relationship with the provider, and | | | | manufacturer |
| there is usually agreement on price. | | | | Extra components necessary due to |
| Some dealers set up their own internal extended | | | | manufacturer updates to complete the repair |
| warranty, which is honored by the selling dealer. | | | | Trim pieces: molding, cup holders, dashboard, |
| This is rare, and should not be confused with a | | | | console, body parts, glass |
| manufacturer warranty. Important: extended | | | | Many accessories: radios, DVD players, TVs |
| warranties are often passed off as | | | | Many expensive electronics: climate control units, |
| manufacturer warranties. They’re not. | | | | navigation assemblies |
| This is a sales trick. Also be aware that there is a | | | | Service contract positives: |
| significant mark up, as the dealership is merely acting | | | | Some service contracts are transferable, and may |
| as the middle man. Lastly, extended warranty | | | | thus increase the resale value of a vehicle. Many |
| companies often go bankrupt without warning. | | | | come with trip interruption reimbursement, towing |
| Third Party Plans: | | | | and 24-hour road side. Some plans can also be |
| These plans are called third party plans because they | | | | financed, or have E-Z Pay Plans. Others offer a |
| are outside the responsibility of the manufacturer and | | | | money-back guarantee. |
| the service center performing the repairs (unless | | | | What should you do? |
| there’s a working relationship with a repair | | | | You’ll get lots of advice about doing the |
| shop as stated above). | | | | research, comparing plans, and reading the fine print. |
| There are hundreds of extended service contract | | | | This is all sound advice. But what about doing the |
| companies. Some have good reputations, some | | | | math? |
| don’t. Third party plans are frequently sold by | | | | Let’s say a plan costs $2500 for 2 years or |
| used car dealers. You may also receive an official | | | | 100,000 miles, whichever comes first. To break even |
| looking notification in the mail stating that your | | | | you’ll need a minimum of $1250 per year in |
| warranty is expiring, and directing you to call an 800 | | | | covered repairs, excluding regular maintenance. |
| number ASAP. This is a marketing tactic by an | | | | Remember covered is the vital word here. |
| independent warranty provider. Despite the | | | | Another way to break it down is to anticipate having |
| official appearance of the postcard or | | | | to pay $104.17 per month over the next two years |
| envelope, it’s not from the manufacturer. | | | | in covered repairs. Do you want to take that |
| Manufacturers do not send out reminders about | | | | bet? |
| warranty expirations. | | | | What could happen? |
| Given the wide-variety of third party plans there are | | | | You could double your money or more in repair work. |
| numerous red flags. | | | | You could conceivably get a new engine and |
| 1) Claims: Extended warranty companies will be quick | | | | transmission (or used ones anyway). You could also |
| to tell you that filing claims is easy, and that the | | | | easily spend $2500 for a service contract, and still |
| service center gets paid immediately via a credit card. | | | | have to pay another $2500 for repairs, which for a |
| Thus, there’s no out-of-pocket expense for | | | | variety of reasons, were not covered under your |
| you. However, the warranty company can’t | | | | plan. Now you’re out $5000. |
| dictate a service center’s policies. Some | | | | Alternatively, you could keep the initial $2500. In |
| service centers will only accept payment from the | | | | many ways all an extended warranty does is prepay |
| repair customer. Thus the burden is on the repair | | | | for repairs. You could stick the money in the bank |
| customer to fill out the forms, contact their warranty | | | | and collect interest. Then you could withdraw the |
| company, and await reimbursement via check, which | | | | money for repairs as needed. |
| can take 2-8 weeks. | | | | Another consideration that’s rarely discussed |
| It is the service center’s responsibility to | | | | is the cause of the problems. Many car repairs |
| contact the extended warranty company to let them | | | | problems are the result of wear and tear, neglected |
| know what’s wrong with the vehicle and to | | | | maintenance, physical damage, or acts of |
| check coverage. This process can take anywhere | | | | Godsuch as flood damage. None of this is |
| from 20 minutes to 20 days, sometimes more, | | | | covered. The gamble only covers failed components. |
| depending on the degree of repairs and especially the | | | | If the vehicle you’re driving does cost $2500 |
| amount. (See $1000 and Adjusters ahead) | | | | to $4500 in repairs due to outright failed |
| Service centers and extended warranty companies | | | | components, is it a vehicle you even want to |
| frequently battle over the fair price of repairs. | | | | consider keeping? A vehicle that needs this kind of |
| Many repair shops no longer negotiate, and just state | | | | repair work due to mechanical, electrical, or computer |
| the price, leaving the contract holder (i.e., the service | | | | failures may not be worth it. The $2500-$4500 would |
| customer) responsible for the difference. | | | | be better spent on an upgrade to a quality vehicle |
| 2) Rentals: Rental coverage is a great benefit. | | | | rather than insuring a lemon. |
| However, there are fixed rates and time limits. In | | | | There’s no question that auto repair is |
| other words, the warranty company is not going to | | | | expensive, and even quality cars break from time to |
| pay to have you drive a Mercedes-Benz, even if you | | | | time. But do they breakdown to the tune of |
| drive a Benz. Rental allowances range from $25 to | | | | $2500-$4500? That’s a hefty bet on a |
| $35 per day. Also, rental coverage is based on the | | | | possibility. |
| number of hours it takes to repair the vehicle, NOT | | | | Terence O’Hara from the Washington Post |
| how long your car has been at the shop. | | | | makes an excellent assessment about extended |
| 3) $1000 and Adjusters: Repairs that approach $1000, | | | | warranties in general. |