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An Extended Auto Warranty Contract is a promise
to perform (or pay for) certain repairs or services between you and
provider. When buying a new or used car, you also may be encouraged to buy
an Extended Auto Warranty contract to help protect against unexpected,
costly repairs.
Extended Auto Warranty , sometimes called ?service contract? maybe arranged
at any time and always costs extra; an original warranty comes with a new
car and is included in the original price. The separate and additional cost
distinguishes a service contract from a warranty.
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2. Why do I need an
Extended Auto Warranty?
Before deciding whether to buy an extended auto warranty contract, it is
important to conduct a cost analysis. The amount of money needed to repair
your vehicle will only increase as time passes, especially as labor rates
continues to go up.
There is no guarantee that if you purchase an extended auto warranty you
will definitely use it. However, cars do have mechanical problems, and that
is a big reason all manufactures will only offer new car warranties for 3 or
4 years. As you look down the road over the next several years of your cars
life, it is hard to imagine what condition you will be in financially when
something does happen to your vehicle. An extended auto warranty can give
you a definite cost of what you will be spending on auto repairs over a
given period of time, and it can also give you an easy payment options.
Important: Compare Extended auto warranties (service contracts) with the
manufacturer's warranty before you buy. New cars come with a manufacturer's
warranty, which usually offers coverage for at least one year or 12,000
miles, whichever comes first. Even used cars may come with some type of
coverage.
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3. What
Exactly Does an Extended Auto Warranty cover?
Few auto service contracts cover all repairs. Indeed, common repairs for
parts like brakes and clutches generally are not included in service
contracts. If an item isn't listed, assume it's not covered.
Watch out for absolute exclusions that deny coverage for any reason. For
example:
> If a covered part is damaged by a
non-covered component, the claim may be denied. If the contract specifies
that only "mechanical breakdowns" will be covered, problems caused by
"normal wear and tear" may be excluded.
> If the engine must be taken apart to
diagnose a problem and it is discovered that non-covered parts need to be
repaired or replaced, you may have to pay for the labor involved in the
tear-down and re-assembling of the engine.
You may not have full protection even for parts that are covered in the
contract. Some companies use a ?depreciation factor" in calculating
coverage: the company may pay only partial repair or replacement costs if
they consider your car's mileage.
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4. Who is responsible
for repair payments?
Ask who performs or pays for repairs under the
terms of the service contract. It may be the manufacturer, the dealer, or an
independent company.
Independent companies called administrators handle many service contracts
sold by dealers. Administrators act as claims adjusters, authorizing the
payment of claims to any dealers under the contract. If you have a dispute
over whether a claim should be paid, deal with the administrator.
If the administrator goes out of business, the dealership still may be
obligated to perform under the contract. The reverse also may be true. If
the dealer goes out of business, the administrator may be required to
fulfill the terms of the contract. Whether you have recourse depends on your
contract's terms and/or your state's laws.
> Learn about the reputation of the
dealer and the administrator. Ask for references and check them out. You
also can contact your local or state consumer protection office, state
Department of Motor Vehicles, local Better Business Bureau, or local
automobile dealers association to find out if they have public information
on the firms. Look for the phone numbers and addresses in your telephone
directory.
> Find out how long the dealer or
administrator has been in business, and try to determine whether they have
the financial resources to meet their contractual obligations. Individual
car dealers or dealer associations may set aside funds or buy insurance to
cover future claims. Some independent companies are insured against a sudden
rush of claims.
> Find out if an insurance company
underwrites the auto service contract. In some states, this is required. If
an insurance company backs the contract, contact your State Insurance
Commission to ask about the solvency of the company and whether any
complaints have been filed.
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5. What type
of extended auto warranty can I buy?
There is no standard protection or distinct levels of coverage that can be
found from one provider to the next. You should always be familiar with what
a particular plan is presenting, and ask questions whenever you are unsure.
Even if you heard the term before ask for their definition, since it may
change from one company to other.
"Bumper-to-bumper?: Bumper-to-bumper,
otherwise know as full protection, represents the highest level of coverage
available. A quick definition will assume that this coverage protects
everything with the exception of regular maintenance and wear. True
bumper-to-bumper protection will not list out all the parts that it
protects. Instead, it will simply state the exclusion list, or the parts
that fit into the category of regular maintenance and wear. If you are
unsure if a particular plans falls into the category of bumper-to-bumper,
ask them if it is an "exclusionary plan".
"Stated Plan" or ?Named Component Warranty?: A stated plan, or
stated coverage, usually corresponds to used cars. A stated plan will
actually state out the complete list of the components that it will cover.
Therefore, if it's a covered component it will be on this list. Don't be
fooled, although a stated plan looks as complete as bumper-to-bumper
warranty protection, it is not nearly as comprehensive. However, these
extended auto warranty plans do cover the major mechanical components of a
vehicle.
"Power Tran protection": Powertrain protection, or drivetrain, covers
the hardest working and most expensive parts of your car. This type of
extended coverage strives to protect you from breakdown to your engine,
transmission, transfer case, drive axle, and seals and gaskets. This
coverage is ideal for older, or higher mileage, vehicles where you are more
worried about major mechanical problems.
"Wrap Coverage": Wrap coverage is a form of extended warranties
specialized for particular vehicles. If your vehicle comes with a powertrain
warranty for 10 years, up to 100,000 miles, than this coverage pertains to
you. A wrap warranty plan takes your existing powertrain protection, wraps
all other components of your vehicle around it, thus giving you
bumper-to-bumper protection for the full 10 years, up to 100,000 miles. This
plan is sometimes only available while a vehicle is within the first 12,000
miles.
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6. How much
does the extended auto warranty cost?
Usually, the price of the extended auto warranty (service) contract is based
on the car make, model, condition (new or used), coverage, and length of
contract. The upfront cost can range from several hundred dollars to more
than $1,000.
In addition to the initial charge, you may need to pay a deductible each
time your car is serviced or repaired. Under some service contracts, you pay
one charge per visit for repairs ? no matter how many. Other contracts
require a deductible for each unrelated repair.
You also may need to pay transfer or cancellation fees if you sell your car
or end the contract. Often, contracts limit the amount paid for towing or
related rental car expenses.
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7. What
about the manufacturer?s warranty on my car?
Every new car purchased comes with a unique warranty program. The limits,
terms, and benefits of the warranties provided are different for each
automobile manufacturer. If you are unsure as to what type of protection
your particular vehicle may or may not have, you should check your owner's
manual, or contact the manufacturer for details. It is important to be
familiar with the term of your manufacturer's warranty so that you will be
aware of when this protection is no longer active.
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8. Won?t I be
purchasing double coverage?
Many people decide to wait to purchase an extended car warranty simply
because they are still under their original manufacture's guarantee. The
truth is that the best time to purchase a plan is when your vehicle is under
this protection. Most auto warranty providers will take into consideration
this fact, therefore considering your car less of a risk to protect, and you
will receive a lower rate then if you had waited. The longer you wait to
purchase a plan the more eligibility you lose. In effect, you will be
receiving the same length of coverage by purchasing earlier, rather than if
you had waited.
You can only extend bumper-to-bumper coverage up
to (in general) 100,000 miles whether you purchase
the protection now, or whether you decide to wait, so it may be to your
advantage to purchase now while the plans are least expensive.
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9. How are
extended auto warranty claims handled?
When your car needs to be repaired or serviced, you may be able to choose
among several service dealers or authorized repair centers. Or, you may be
required to return the vehicle to the selling dealer for service. That could
be inconvenient if you bought the car from a dealership in another town.
The top warranty companies work like this: If your car breaks down or is in
need of repair, take it or have it towed to any licensed repair facility and
present your service agreement. After they diagnose the problem, they will
call the claims administrator and receive authorization for all your covered
repairs less a deductible where applicable.
> Find out if your car will be covered if it breaks down while you're
using it on a trip or if you take it when you move out of town. Some auto
service contract companies and dealers offer service only in specific
geographical areas.
> Find out if you need prior authorization from the contract provider
for any repair work or towing services. Be sure to ask:
> How long it takes to get authorization.
>Whether you can get authorization outside of normal business hours.
>Whether the company has a toll-free number for authorization. Test
the toll-free number before you buy the contract to see if you can get
through easily.
You may have to pay for covered repairs and then wait for the service
company to reimburse you. If the auto service contract doesn't specify how
long reimbursement usually takes, ask. Find out who settles claims in case
you have a dispute with the service contract provider and need to use a
dispute resolution program.
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10. What details should I make sure an extended auto warranty provides me?
Money back guarantee: If you are going to purchase an extended auto
warranty, make sure that you are
given some sort of review period with the contract. This will ensure that
you will be satisfied with the plan, or else you can cancel for a full
refund within a certain number of days. Most warranty plans will give you at
least a 30-day money back guarantee period.
Backed by a reputable insurance company:
Find out which insurance company is backing your extended warranty plan. Ask
them what the insurance company is rated.
Low deductible option: If you are going with a long-term plan you
want to get the lowest deductible possible. It is not unlikely that you may
use this plan at least once per year. If that's the case, a large deductible
can add up quickly. Go with a reasonable deductible, if any. However, if you
are going with a shorter-term plan, and less coverage (i.e.: just a
powertrain warranty), a higher deductible can bring down the cost for your
extended car warranty. Since you are only shielding yourself against major
repair costs anyway, a larger deductible will not hurt you here.
Transferable: If your extended auto warranty is transferable, you
have the option of transferring the warranty
should you ever sell the car, or give it to someone. This would clearly add
to your car's resale value because the car is still protected by an extended
auto warranty, and, therefore, considered less risk present.
? Pro ratable: Whether you may sell the vehicle, trade it in, experience a
crash resulting in the vehicle being
totaled, or theft, pro-ration gives you the opportunity to get out of your
contract with a refund. A pro-rated refund determines what amount of
warranty you have left at the time you cancel the contract, using either the
time elapsed or mileage accumulated, whichever is greatest.
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11.
Should I buy extended auto warranty from dealership?
Just because a dealer is offer you a car warranty does not mean that it
is a manufacturer's plan. Many times dealers are selling third party
warranties, and because the consumer believes they are purchasing a premium
plan, the dealer is able to mark up the cost. You need to find out exactly
what king of a plan the dealer is offering you.
If you're told you must purchase an auto service contract to qualify for
financing, contact the lender yourself to find out if this is true. Some
consumers have had trouble canceling their service contract after
discovering the lender didn't require one.
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12. What are the common additional benefits for an extended auto warranty?
Many extended car warranty protection plans come with a range of additional
benefits. Although there is no standard mix of these benefits, the following
lists out the most common benefits offered in auto warranty plans.
Road Hazard Benefit: A road hazard program offers reimbursement
should you damage or destroys your tire(s) from a nail, pothole, curb, etc.
This program is not unique to extended warranties, but is also offered in
many car insurance programs, and even from a vehicle maintenance provider,
such as whomever you purchased your last set of tires from. Most road hazard
programs will limit the amount of money they are willing to reimburse you
per incident.
Rental Benefit: A rental benefit will pay for, or contribute toward,
the amount of money spent on a rental vehicle while your car was being
repaired. Once again, the amount of money offered is limited on a daily
basis, therefore limiting the type of vehicle you are able to obtain. When
learning about a particular plan and their policies on their rental program,
it is important to discover whether the rental benefit will be available
from minute one, or whether they demand a certain amount of time to be
worked on your vehicle before granting this right. Some car warranties will
make you wait up to 8 hours before allowing you to drive off in a paid
rental car, while other plans will let you take the car as soon as you drop
off your vehicle.
Trip Interruption Benefit: The trip interruption benefit is built-in
with auto warranties to provide you with the peace of mind knowing that
should your car breakdown far from home you will receive some compensation
for the money you had to spend on food and lodging. This reimbursement
process is generally in the form of you supplying your extended auto
warranty provider with receipts, and then them sending you a check.
Towing Benefit: If you are unable to drive your vehicle to a repair
facility, or if it has broken down along the side of the road, a towing
benefit will make sure that you are not responsible for the cost of towing
your vehicle. The amount of money allotted to this benefit is different for
each car warranty plan, and can sometimes differ depending on the size of
your vehicle.
Lost Key Lock Out Benefit: Should you ever need the services of a
locksmith to help gain access to your vehicle, this benefit can compensate
you for a portion of those costs. Again, the limit of the benefit may differ
for each particular extended car warranty provider.
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13. What are my
responsibilities?
Under the contract, you may have to follow all the manufacturer's
recommendations for routine maintenance, such as oil and spark plug changes.
Failure to do so could void the contract. To prove you have maintained the
car properly, keep detailed records, including receipts.
Find out if the contract prohibits you from taking the car to an independent
station for routine maintenance or performing the work yourself. The
contract may specify that the selling dealer is the only authorized facility
for servicing the car.
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Extended Auto Warranty Explained
Cars