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3 things to know about extended car warranties

An extended warranty might keep you from a budget-busting repair bill. But make sure you buy it right.

By Stacy Johnson Jan 15, 2010 7:08AM

You insure against untimely death, bad health and damage to your property. Should you insure against giant car repair bills too?

An extended warranty can provide protection against a budget-busting bill. But keep it in park until you understand what they do and how they work.


Here’s the backstory to the news story you’re about to watch: The lady you'll see, Debbie, is someone I work with from time to time. She contacted me with this story to prevent others from running into the same extended-warranty ditch she did. Watch the video to see what that was, and then meet me on the other side for more.



This story did a good 90-second job of explaining extended warranties and what to look for. But now let’s put a little meat on the bones.


Here’s another look at those tips:


Know what it covers, and when it expires. When she agreed to be a part of this story, Debbie confessed embarrassment that she’d been paying for coverage that had long expired. But who among us is going to remember details of coverage six years after we sign up for it?


One way you might try is to make yourself a quick “crib sheet” with your basic policy information and keep it with your registration and proof of insurance in your glove box.  Then, every year when you replace your proof of insurance with a new one, a glance at your sheet will tell you if your extended warranty is still in force and give a reminder of your policy's particulars.

And that brings up something crucial about extended car warranties: They’re not actually warranties in the technical sense. They’re really insurance policies. And like insurance policies, they can vary wildly concerning what’s covered, what’s not, deductibles and transferability. So when you’re shopping policies, you’ve really got to dig into the fine print and compare. Don’t have the time? Don’t spend a dime.


And be aware that newer cars with fancy gadgets often cost a ton to repair. Here’s a story I did on that.


Which steers us right into our next tip:


Shop an extended warranty like you shop a car. By this I mean don’t buy the first thing that strikes your fancy. Kick a few tires. You don’t have to buy an extended warranty from the dealer and you don’t have to buy it when you buy your car. You can buy them from insurance companies, companies that specialize in just those policies, or even from some credit unions. But wherever you shop, don’t forget the final tip.


Ask questions -- lots of them. Is there a deductible? How much? Is it per visit or per repair? (In other words, if you bring your car in and they find three separate things wrong, is there a deductible for each, or just one for the visit?) Can you bring your car anywhere or just to the dealer? Do you have to pay the bill and submit it to the warranty company, or will they pay the repair shop directly? What’s specifically excluded? Is the warranty transferable? Is it a “break-down” warranty (covering only parts that actually break) or a “wear-and-tear” warranty (paying for parts that just plain wear out?) And then, of course, the ever important “How long will it last and how much will it cost?”

You should make sure the policy you purchase dovetails with the manufacturer’s warranty. In other words, if your manufacturer’s warranty is already covering something, there’s no need to pay for protection you already have.  


And keep in mind that an extended warranty is only as good as the company that backs it. If it’s an insurance company, make sure it has at least an “A” rating from either A.M. Best or Standard & Poor's.


If I were writing this several years ago, I would have said this wasn’t a concern if you were buying your warranty directly from the manufacturer. These days, however, I’m not so sure.  

Bottom line? Whether you should even buy an extended warranty depends on how afraid you are of the consequences of not having one. But if you do decide to travel this road, don’t end up wrecking both your peace of mind and your budget by failing to shop it properly.


Related reading at Money Talks News:

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