Extended Auto Warranty Advice
Since I have been in the extended auto warranty business for over 25 years, I am often asked by friends and business associates for extended auto warranty advice on buying a contract and what to look for. Here are a few ideas.
My extended auto warranty advice is the same as it would be for buying any product or service. Do your homework! Knowledge is power and will translate into a happy buying experience and not leave you with buyers remorse down the road.
An extended auto warranty or vehicle service contract is a piece of paper that promises to pay for your covered repairs should something break on your vehicle. So what do you look for to avoid disappointment?
- Who makes the promise?
- What are they agreeing to pay for?
- How much does it cost?
- Buy from dealer/manufacturer or third party?
Who Makes the Promise?
The extended vehicle warranty landscape is littered with the bones of failed companies who tried to be successful in this business. Some died because they were bad business people. Some because they were dishonest and took the money and ran. Some have survived and prospered providing millions of consumers with valuable protection and peace of mind.
How do you know the good ones from the bad? That piece of paper you get, a contract, is backed by someone. Make sure it is at least an "A" rated carrier by A.M. Best. You can easily check by going to www.ambest.com and entering the company name. Do this before you buy! Also demand a sample contract. Any company worth it's salt will gladly provide one for you.
Next find out how long the company has been insuring or underwriting this type of business. Obviously the longer the better, as this indicates stability.
What are They Agreeing to Pay For?
There are two types of extended vehicle warranties or vehicle service contracts. One lists all the parts that are covered and can range from very basic and minimal to an extensive list covering almost everything. The other is a named exclusion contract and lists only the things that are not covered. Simply stated if it's not excluded it is covered. Generally these are the most comprehensive contracts.
Again demand to see the contract and review the list of covered or excluded parts. The more expensive and high-tech your vehicle, the more you should probably favor the exclusionary coverage. This would be my advice. Some companies also provide a "high-tech" option to cover navigation systems and other electronic/computer devices. Ask about them and how much that coverage will add to your cost.
How Much Does it Cost?
For most of us this is the big question and may determine whether or not we purchase an extended vehicle warranty or a vehicle service contract.
A rule of thumb - the more expensive your vehicle the more the coverage will cost. Coverage on a Honda Civic will be a lot cheaper than on a Mercedes Benz S550
Do not buy from the first company from whom you get a quote. Check out at least three. You might be surprised at the price difference. Remember to compare apples to apples. If one company is quoting basic drive train coverage and another exclusionary coverage with few exclusions it is not a fair comparison.
You work hard for your money. A little time spent researching and comparing can save you hundreds if not thousands of dollars. Not a bad return on your time invested.
Buy From a Dealer or a Third Party?
There are two types of contracts that do essentially the same thing.
- Dealer/Manufacturer extended vehicle warranty
- Third-party vehicle service contract
Only a dealer through a manufacturer program can sell an extended vehicle warranty. Only the manufacturer can truly "warrant" the many components that make up a vehicle. All others, including autoPOM, offer a vehicle service contract with several notable exceptions. In California and Oregon third parties are required to sell mechanical breakdown insurance. An actual insurance contract between you and an approved insurance comapny.
Dealer offered coverage is attractive because you can complete the total transaction in one place and probably include the cost of your coverage with your auto payment. Several reasons you may not want to choose this option:
- Not all dealers sell a manufacturers extended vehicle warranty.
- You may be required to return the vehicle to the dealership or a similar dealership to obtain repairs. This may be inconvenient or you may have your own favorite independent mechanic.
- Dealer/manufacturer contracts are typically more expensive.
- Recently many dealers have gone out of business.
- Quality third party providers (like autoPOM) offer financing options for vehicle service contracts.
My advice on buying an extended auto warranty or vehicle service contract is to do your homework. Compare coverage, price, and underwriter and you will be happy for many years to come. Who doesn't want peace of mind? Let us know if we may be of service.
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