Other
names for extended warranties are vehicle service contracts,
extended service agreements, and mechanical breakdown insurance.
For the sake of clarity, we will use the term extended warranty
to encompass each type of plan.
An
extended warranty is an agreement between you and the warranty
administrator which states that if a part or component covered
by the policy breaks, or in some cases wears out, the warranty
company will pay to have it repaired.
Extended
warranties frequently include benefits such as emergency
roadside assistance, lock-out assistance, flat tire assistance,
fuel and fluid delivery, battery jump, flat tire repair,
and towing. Most also include rental car and towing benefits,
too. More comprehensive plans may also provide options for
DVD entertainment and navigation systems, if coverage for
those is not standard.
Warranty
companies are governed by both federal and state laws, the
latter of which vary. Any reputable warranty company will
be protected by an insurance company that guarantees the
obligations of the warranty company. The most reliable warranty
companies carry an “A” rating from A.M. Best & Company.
They are an independent insurance evaluator which has a
100-year old history of rating insurance companies for financial
soundness.
Mechanical
Breakdown Insurance (MBI) deserves a separate word. MBI
is essentially an extended warranty, but it has a different
legal standing. MBI is available in California and is regulated
and by the California Department of Insurance. In certain
states, MBI is not regulated. Reputable warranty companies
and their brokers understand the difference and will offer
you plans that conforms to applicable state laws.
