Where
Should I Buy an Extended Warranty?
The
term of vehicle warranty coverage is stated as months and/or
miles. Typically, but not always, the more months and/or
miles the policy covers, the more costly it will be. Examples
of coverage terms are 36 months / 45,000 miles, 60 months
/ 75,000 miles, or 120 months / 100,000 miles.
It
is important to understand that all policies are in
effect until “whichever comes first”. Meaning, for a plan
with coverage for 2 years and 24,000 miles, and you drive
50,000 miles in two years, your warranty will expire in
two years as soon as you reach the 24,000 miles. It’s critical
to factor in your driving habits, and to focus more on the
plan’s mileage allowance.
Warranties
are typically available from 12 months to 120 months. In
some cases, the additional price for adding another year
is very inexpensive, sometimes less than $100, and should
be asked about when speaking with a warranty company or
broker.
Many
places offer extended warranties, but few offer a good value.
You can buy an extended warranty from the manufacturer directly,
the dealer, a warranty company, a warranty broker, or a
warranty sales representative.
Manufacturer
and dealer warranties are infamously costly. You will save
a substantial sum of money by purchasing directly from the
warranty company, a warranty broker, or a warranty sales
representative. Take note, however, that manufacturers,
dealers, and warranty companies only offer their own warranties.
Meaning, the options are limited to what that particular
dealer or warranty company offer, and not every type of
warranty will be represented. Find a warranty broker that
represents multiple warranty companies, all of which compete
for your business.
Dealers
typically try to sell you an extended warranty when you
buy a new car, and often suggesting including the cost in
your financing. Dealers make a huge profit on these policies.
There is certainly no reason to make an on-the-spot decision
with the dealer’s Business Manager or salesman. You will
qualify for the same type of plan at any time during the
period of your factory warranty, and you will certainly
find it at a better price through another source.
The
best price, best service, and best value can be found from
a warranty broker who works with many warranty companies.
You can expect to save up to 60% over a dealer warranty
for the same coverage that the dealer is offering.
Find
warranty companies that are “direct insured”. To be direct
insured means that an independent, A.M. Best-rated insurance
company is backing the warranty company. Choosing a warranty
with such protecting is to obtain the most secure and reliable
coverage available. A significant reduction is security
are plans backed by a Risk Retention Group, or RRG. An RRG
is an entity created by a group of warranty companies pooling
their resources to insure one another. RRGs are considerably
less stable than traditional insurance companies, and hardly
regulated. Historically, failed warranty companies have
been backed by RRGs. The least secure coverage is from a
company that is self-insured. That is normally a euphemism
for a warranty company that has no insurance at all. Of
course, you will pay a slightly higher price for a direct
insured warranty, but the extra security for your investment
is worth the difference.
A
good warranty broker will offer 30-day money back guarantee,
will be listed and accredited by their local Better
Business Bureau, will be listed on Dun and Bradstreet, and
will be bonded. These show that they are professionals,
and care enough to protect their reputation. For a broker
to be bonded means that they have purchased special
insurance just to protect you from you pay them for the
plan, to the time your warranty coverage is active.
The
top warranty brokers can be found online. Use any search
engine and enter the terms “extended warranty” or “auto
warranty”. Very important things to look for are whether
they post their contracts online, whether they post their
prices after you provide your information, and whether they
indicate that they represent more than 2 or 3 companies.
Stay away from any broker or warranty company that doesn’t
do all of these.
