AUTO WARRANTY RESEARCH - Why Buy a Warranty in the First Place?

For most people, second to a house, a car is the second most expensive purchase they make. A warranty is the best way to protect that investment. Having a warranty means that you are insulated from unexpected, expensive repair costs. The warranty administrator will be paying them, rather than you.

The size of the vehicle repair industry testifies to a fact we all know intuitively: cars break down. Consumer Reports states that the average rate of problems is 55 for every 100 vehicles. Anyone who keeps a vehicle more than 3 years is likely to need the services of a repair facility at least once, but often more.

Car repairs are costly. As vehicles become more complex, and with labor costs rising, repairs are becoming even more The average cost to repair an air conditioning system for example is $875. Repairs costs are expected to increase 35% over five years. That means that an $875 repair today will be air conditioner repair today is going to cost about $1277 five years from now. Even one major repair can pay for a warranty, and most people can expect many more than only one repair.

Component	Average Cost
Engine	$2,450
Transmission	$1,975
Brakes	$1,200
Onboard Computer	$950
Air Conditioner System	$875
Starter	$450
Oil Pump	$550
Radiator	$425

In addition to paying for your repair, most warranties also include additional features such as emergency roadside assistance, rental and towing benefits, vehicle lockout benefit, flat tire assistance, and even travel discounts.

A vehicle’s value is enhanced considerably by being protected by a warranty. The NADA wholesale vehicle guide advises users that vehicles with warranties should be considered as being in “excellent condition,” rather than simply good. Further, private sellers offering a warranty with the vehicle are at a distinct advantage in relation to cars being sold “as-is.”

Manufacturer’s warranties are provided by the vehicle’s maker, and cover specified parts for a stated number of miles and years/months. Law requires manufacturers to protect against factory installed parts for defects or workmanship.

In the US, new vehicles come standard with at least two warranties: The basic warranty covers practically all components, except items that are known or expected to wear out with normal usage. Such items include brake pads, filters, belts, hoses, and wiper blades. A powertrain warranty, which often runs concurrently with the basic warranty, protects the engine, transmission, axles and drive axle assembly. Most vehicles also come with a warranty protecting against rust or corrosion Warranty. Finally, federal law requires the emissions components to be protected by the factory for 8 years or 80,000 miles, and Passive-Restraint systems for 5 years or 50,000 miles.

The terms for manufacturer’s warranties naturally vary from make to make. Check your owner’s manual See your owner’s manual, dealer, or check the vehicle manufacturer’s website for details of your warranty.

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.

There are a variety of vehicle warranties available. Understanding which one is best for you will help you avoid frustration, and will help you save time and money in the future. There are manufacturer’s warranties, extended vehicle service contracts (extended warranties), mechanical breakdown insurance, and product warranties. These various types provide different levels of coverage, and are regulated by various laws both federal and state.

Product Warranties generally provide more basic coverage than a typical extended warranty. A product warranty is permitted to provide coverage only to parts that are in direct contact with the product or parts that are mechanically connected to vehicle components. For example, a manufacturer of air conditioning lubricant may warrant that the air conditioner will not break, because of using their product. However, the manufacturer is not permitted to warrant that the car’s radio will not break, since the radio is not in direct contact with the air conditioning lubricant.

Product warranties may not be offered sold for a distinct price and must be offered free of charge. These warranties, or guarantees, typically limit how much you can recover for repairs. While extended warranties must be guaranteed by an insurance company, product warranties do not.

It’s important to remember with any warranty that you must perform the routine maintenance as indicated by the manufacturer. If your manufacturer recommends changing the oil every 3,000 miles, and you don’t change it for 15,000 miles, the warranty may be voided, aside from any damage caused by the lack of fresh oil!

Extended Warranties range from bumper to bumper protection all the way to basic powertrain, with many levels in the middle. The auto warranty industry has created three major categories, and every extended warranties belongs to one of these. These are bumper to bumper, stated component, and powertrain.

A bumper to bumper warranty, sometimes called a new car warranty, or an exclusionary policy, is the most comprehensive coverage available. They cover so many parts and components that the policy does not list covered components, but only lists parts not covered. Thus the term “exclusionary” since only the items excluded from coverage are listed. Most bumper to bumper plans also include roadside assistance, towing, and car rental.

Bumper to bumper coverage is typically available to what the industry considers “new cars”. Usually that refers to vehicles up to 50,000 miles, under 5 years old.

Every warranty excludes some component, even the original factory warranty. Make sure you read the policy to see exactly what is not covered. Still, they are the most complete coverage on the market.

Stated Component coverage, also called an inclusionary policy, is an extended warranty that covers most of the major parts and components on your vehicle, with varying degrees of comprehensiveness. These plans will list all items covered by the warranty, thus the term “inclusionary”.

Stated component plans are a good alternative if your vehicle is not eligible for a bumper-to bumper policy. Usually plans will very comprehensive coverage is available to vehicles between 50,000 and 100,000 miles.

Powertrain coverage provides coverage for the most major components of the vehicle. That includes engine, transmission, drive axles and drive axle assembly.

A powertrain warranty will cover you for the most basic items and the catastrophic failures that can occur. These are the least expensive warranties available. A powertrain warranty is most appropriate for a higher mileage vehicle. However, if you are most concerned about protecting yourself against the largest repair bills, a powertrain warranty is the best option.

Eligibility for particular plans is determined by the vehicle’s age, mileage, make and model. Additional features such as four-wheel-drive, turbo/super charged, diesel engine, and number of cylinders, also affect eligibility. Vehicle history and usage are also considered. That is, whether a vehicle is used for commercial purposes, or whether it has a reconstructed or salvage title. Small surcharges may apply in certain instances relating to those issues. Each extended warranty has specific requirements, and a warranty company or broker will offer policies that best match your vehicle and needs.

Some options, or ways in which the vehicle may be used, will require an “optional coverage supplement”, warranty terminology for a surcharge. These include engines larger than 8 cylinders, vehicles used for plowing snow, dual rear-wheel trucks, salvaged or branded titles, vehicles with lift kits, lemon law vehicles, vehicles used for towing, vehicles exceeding 1 ton GVW, police or emergency vehicles, or vehicles used as a taxi. Optional coverage supplements will vary by warranty company.

It’s important to know your vehicle’s features well before contacting a warranty company or broker. It is crucial to give correct information about your vehicle, such as whether your vehicle is 4WD or AWD, whether it has a salvage title, or if it is being used commercially. Each of those can affect the warranty price. Forgetting or otherwise neglecting to mention these kind of features or modifications when setting up your plan, will result in your warranty being voided.

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.

The mileage aspect can be most confusing, but it is also the most critical. Warranty plans use the term mileage to refer to either the total number of miles on the odometer, or to additional miles beyond what is currently on your odometer. This is a crucial distinction to note when arranging your coverage.

As an example, if you have a vehicle with 50,000 miles, and the warranty plan provides coverage for covers 48 months /100,000 miles on the odometer, you are only covered for 50,000 miles, or until your odometer reads 100,000 miles. If you have a plan that covers you for 100,000 additional miles, then you are protected until your odometer reads 150,000 miles.

Normally, for bumper to bumper plans, mileage stated in terms of total miles on the odometer, rather than additional miles. Conversely, stated component plans present mileage as additional mileage to what your odometer currently reads. Some plans, typically short term, stated component ones, may offer unlimited mileage. Ensure that you understand the mileage terms of the plans you are researching, so that the coverage being offered is clear.

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.

There are no hard and fast rules. Reputable warranty companies and warranty brokers are in business to make money and they wouldn’t be in business for long if you weren’t saving money. Do expect to pay a fair price for a fair policy and don’t be fooled by a cheap policy with very little coverage. After all it’s all about saving money and peace of mind.