Guest Post by Alice Stevens of BestCompany.com

Some terms associated with car warranties have specific legal definitions, while others are used more often in casual conversation. Some car warranty terminology is used interchangeably. When considering a car warranty, it’s important to know and understand your options.

In this article, you’ll find the following:

  • Definitions of car warranty, extended car warranty, vehicle protection plan, and mechanical breakdown insurance
  • How each option is regulated
  • How each option is priced
  • How payments are made
  • Required car care

 

Definitions

Car Warranty: Technically speaking, the only true car warranty is the one provided by the manufacturer or factory. These warranties are only available on new cars, and some cannot be transferred to a new owner if the vehicle is sold. These car warranties are commonly referred to as a manufacturer warranty or factory warranty.

Vehicle Service Contract: This is a contract between a car owner and a company that specifies specific repairs that the company will help pay for and under what circumstances the company will pay for the repairs. Sometimes these contracts have restrictions on where the car can be repaired. These contracts are sometimes referred to as extended warranties.

Extended Car Warranty: While vehicle service contracts are often referred to as an extended car warranty, legally vehicle service contracts are not considered warranties. Consumers looking for an extended warranty are actually looking for a vehicle service contract.

Because many consumers are familiar with warranty terminology, warranty terms are sometimes used to describe vehicle service contracts. For example, some common types of vehicle service contracts are exclusionary warranties (also called “bumper-to-bumper”), stated component warranties, and powertrain warranties.

Vehicle Protection Plan: Some companies offer vehicle protection plans. These plans are similar to vehicle service contracts and cover specific car parts and repairs resulting from malfunction.

Mechanical Breakdown Insurance (MBI): Like an extended warranty, MBI helps cover certain car repairs resulting from malfunction or mechanical breakdown. MBI is typically available for newer cars.

MBI can also be added to a typical auto insurance policy to provide additional protection than just repairs resulting from an accident. MBI policies can also have more flexibility to include certain car parts and can include coverage for more parts than an extended warranty.

Types of Extended Warranties:

Exclusionary warranty: Also known as bumper-to-bumper coverage, exclusionary warranties cover all car parts except for the items listed in the contract. These warranties offer similar coverage to a factory warranty and are typically only available for newer cars with less mileage.

Stated Component warranty: This warranty offers medium coverage. Stated component warranties only cover the car parts listed in the contract. Some extended warranty companies offer several different levels of stated component coverage, which allows customers to find a great vehicle service contract that is also affordable.

Powertrain warranty: These warranties offer the most essential and basic protection for a car. Powertrain warranties typically cover the engine, transmission, and a few other major car parts.

Extended warranty and insurance cost

Pricing for all car warranties, vehicle service contracts, and MBI is based on the following:

  • a car’s mileage
  • a car’s age
  • a car’s make and model
  • the extent of the coverage purchased

Because the pricing varies so much, it’s difficult to pin down even general costs.

Generally speaking, the most expensive place to buy an extended warranty is a car dealership. Purchasing a vehicle service contract independently or adding MBI to an auto insurance policy tend to be more cost-effective for consumers.

Consumers should contact extended car warranty companies and insurance companies directly to learn more about product costs for their car.

Payment plans

Some car warranties and vehicle service contracts require consumers to pay for the entire warranty or contract upfront, which is why some consumers prefer to purchase MBI instead.

However, extended warranty companies, like autopom!, permit their customers to set up an interest-free payment schedule that fits their budgets.

Required car care

Most extended warranties and MBI can be voided if the car owner does not take proper care of their car or makes alterations to the vehicle. Each vehicle service contract or MBI policy will clearly state what a car owner needs to do to keep the contract valid.

One common requirement is to have regular oil changes because they are an important way to maintain the engine and keep the car running properly.

Insurance and extended warranty regulations

Laws regulate the insurance industry and car warranties. The Federal Trade Commission logs serious consumer complaints.

In general, state attorneys general, state insurance commissions, and local consumer protection agencies also handle consumer complaints and issues with insurance companies and extended warranty companies. The specific laws and regulation processes vary by state.

The Federal Trade Commission recommends looking for a company with a good reputation and checking to see if any complaints have been registered with the consumer protection office.

Additionally, the Federal Trade Commission suggests that consumers research the insurance company that underwrites an extended warranty company’s contracts to ensure that it is a financially strong company and is able to meet claims obligations.

Consumers should be selective when choosing a car warranty company and understand the contract terms before signing up.

Understanding the terms and differences between a car warranty, vehicle protection plan, and mechanical breakdown insurance (MBI) will help you understand your options and make the best choice for your financial situation.

Choosing a reputable company will also ensure that your claims are met. Just be sure to know the terms of the contract and keep your car in good condition so that you don’t void your vehicle service contract or MBI.