What’s an extended warranty, anyway?
To help you find the best auto warranty for your car, our team has put together this comprehensive guide to car warranties. In this article, we will look at what an extended warranty is, what it does and does not cover, how it works, what it costs, and how to find the best warranty company for you.
For more information on the companies we recommend, check out our article on the Best Extended Car Warranties of 2020.
In this article:
- What An Auto Extended Warranty Is ... And What It’s Not
- What To Expect From Your Auto Extended Warranty
- What Auto Warranties Don’t Cover
- How to Use Your Vehicle Service Contract
- How An Extended Auto Warranty Can Benefit You
- How Much Does An Extended Auto Warranty Cost?
- Who Are The Top Extended Auto Warranty Companies?
What An Auto Extended Warranty Is ... And What It’s Not
All vehicles come with an auto warranty, which is a promise from the manufacturer to pay for all repairs or replacements caused by defects in materials or workmanship of failed parts. Auto warranties only last for a few years. When they expire, though, an extended warranty can continue coverage.
Despite its name, an auto extended warranty is not a warranty. Technically, it is a vehicle service contract. What’s the difference?
A warranty is included in the purchase price of your vehicle. It covers all flawed parts for a certain period of time (typically 36 months or 36,000 miles).
A vehicle service contract is an additional protection plan paid for separately. The OEM (original equipment manufacturer), such as Toyota or Ford, usually offers its own vehicle service contract, while other aftermarket contracts may be provided by a third-party vehicle service contract provider.
The provider is responsible for fulfilling claims on your vehicle. Some third-party companies are the administrators that are responsible for the claim itself, while other companies, known as brokers, market plans from other insurers or authorized plan administrators.
An Auto Warranty Is Not An Insurance Plan
Auto insurance is separate from an auto warranty and covers costs associated with accidents or theft. It’s a contract between you and your insurance company. Insurance coverage includes:
- Property damage caused by an accident or theft
- Liability or legal responsibility to others for bodily harm and/or property damage
- Medical costs for injury treatments, rehabilitation, lost wages, and funeral expenses
Some companies offer both auto warranties and vehicle insurance, such as USAA and AAA. To receive these protection benefits, you must be a member of either USAA or AAA. To become a member of USAA, you or a parent must serve in the United States Military. USAA and AAA plans are well known and competitively priced for their members, but getting qualified for coverage is obviously limited to these restrictions.
What To Expect From Your Auto Extended Warranty
Your coverage depends on the type of extended auto warranty that you purchase.
An extended auto warranty bought directly from an OEM generally offers only two levels of coverage, similar to that of the manufacturer’s new car warranties. These are:
- A longer powertrain warranty, which covers parts in the vehicle’s engine, transmission, and drive axle
- A shorter bumper-to-bumper warranty, which covers all vehicle components with few exceptions
The OEM may also offer additional packages that cover parts not normally included in the extended warranty, such as the battery, tires, or cosmetic items like curb rash, paint scratches, and small dents.
An extended warranty from a vehicle service contract provider or third-party provider offers similar coverage, but many offer more coverage tiers and plan options than the OEMs offer. You may notice plans labeled “powertrain plus,” which include larger systems like air conditioning, steering, or fuel delivery, in addition to the basic drivetrain. These warranties provide more targeted coverage for your vehicle’s specific needs.
What Auto Warranties Don’t Cover
Before you choose an extended auto warranty, it’s important to know it’s not a coverall for every part in your vehicle. There are exclusions common to every vehicle service contract, whether provided by the OEM or by a third-party provider.
What should you not expect to be covered?
- Items damaged by regular wear and tear
- Items damaged by neglect or reckless driving habits
- Items damaged by bad weather
- Tires, brake pads, windshield wiper blades, and other routinely replaced items
- Items that were not originally part of the vehicle, such as customized accessories
Some extended warranties, as well as warranties for certified pre-owned (CPO) vehicles, will require a vehicle inspection and proof of regular maintenance in order for repair claims to be approved. It’s a good idea to check with your auto warranty provider about maintenance requirements in order to avoid rejection on a claim.
Don’t forget to ask if coverage is limited to just new or used vehicles. Different levels of coverage may be restricted to new or CPO vehicles.
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How to Use Your Vehicle Service Contract
A convoluted claims process only adds to the stress of a car breakdown. When looking for the right service contract, you should ask a few questions about how your claim will be handled:
- Do repairs require prior authorization from the contract provider?
- If so, how long does authorization take, and can you get authorization outside of regular business hours?
- Are you required to pay for the repair up front and wait for reimbursement?
- If the above is true, how long does it take to be reimbursed?
- Who settles claims? Are they backed by insurance, or can the provider prove its ability to pay all claims?
A good extended auto warranty provider will offer a wide network of authorized repair facilities, pay the repair facility directly for repairs, and be backed by insurance, proving its reliability.
Different auto warranty providers will have different limitations. For instance, dealerships may only authorize their own facilities and certified mechanics for repairs. Most third-party companies will authorize a wider network of local and major chain facilities and pay those facilities directly.
In some cases, third-party companies will not offer insured plans. CARCHEX, AAA, and other companies do offer insurance-backed contracts, which provides assurance that covered claims will be fulfilled. Each company is different, so you should ask each provider these same questions.
An example of a claims process could follow these steps:
- Confirm your repair is covered.
- Get the repair authorized.
- Drop your car off at an authorized repair facility.
- Authorize the mechanic to diagnose your vehicle.
- Ask them to provide their authorization number with your provider’s Claims Department.
- Let the provider take care of the rest.
You may have to pay a small deductible, but you shouldn’t have to worry about paying for parts and labor.
How An Extended Auto Warranty Can Benefit You
Vehicles today last longer than they ever have before. The longer you keep your vehicle, the more likely you are to encounter some sort of malfunction or part failure that costs hundreds of dollars or more to repair. Unless you own a non-luxury brand or one of the cheapest vehicles to maintain and repair, then you should expect your repairs to cost extra. An affordable auto warranty priced below the more common repair costs for your particular vehicle is well worth the price.
|Common Replacements And Costs||Bumper-to-Bumper Coverage|
|Ignition Coil and Spark Plug Replacement||$344|
|Oxygen Sensor Replacement||$275–$500|
|Catalytic Converter Replacement||$500-$2,200|
Are you still on the fence about paying for a vehicle service contract? Perhaps you think your vehicle will not need any major repairs? Whatever your concerns may be, consider some of these overlooked benefits to purchasing an extended auto warranty.
1. Avoid Dealing With Shady Mechanics
According to the North Carolina Consumers Council, your mechanic might make statements that raise red flags:
- Your mechanic may say, “We should replace the entire thing.” In many cases, a simpler and less expensive repair can fix the issue.
- If your mechanic does not notify you of accidental damage during a repair, or the mechanic denies damage that wasn’t there before, you may end up paying for more repairs out of pocket.
- If your mechanic states that a repair will cost more than originally planned or that it will take more than a week, it could be a sign that you are being overcharged for parts or labor.
An extended auto warranty covers the price of authorized repairs no matter the cost, especially if the cost of parts rises with inflation. Furthermore, you won’t have to deal with paperwork and untrustworthy practices at the repair facility. Your provider will take care of that for you.
2. Increase Your Vehicle’s Resale Value
When you put your car up for sale, potential buyers trust you have taken good care of it. A vehicle inspection can prove your word regarding the condition of your vehicle, but an auto warranty that you can transfer to a new owner will give buyers an added sense of security. While the warranty may not increase the actual price of the car, it can make the car more appealing to buyers.
3. Peace Of Mind Benefits
Most auto warranties, including new car factory warranties and third-party extended warranties, offer “peace of mind” services in the event of a breakdown. When you’re in a bind, the last thing you want to deal with is the price of towing or a rental car.
Extended warranty companies offer roadside assistance and related benefits such as:
- Towing services
- Rental car reimbursement
- Meal and lodging reimbursement
- Trip interruption coverage
- Key lockout services
- Emergency fuel delivery
Reimbursement rates vary by provider, so ask your representative how much of your rental or last-minute hotel is actually covered.
How Much Does An Extended Auto Warranty Cost?
The average extended auto warranty from the manufacturer costs between $1,000 and $1,500. Your coverage might cost more if you own a luxury vehicle that requires more expensive parts, or if your vehicle is in questionable condition.
Look for an extended auto warranty with a low deductible (some companies offer deductibles as low as $0) and a monthly payment plan. Lower monthly payments make the full price less overwhelming, especially if you are already having trouble starting an emergency fund for future repairs.
Who Are The Top Extended Auto Warranty Companies?
When you start shopping for an extended car warranty provider, you’ll quickly notice there are many options available. How do you narrow them down?
We looked into the leading extended warranty providers and reviewed them based on factors such as coverage options, customer service, and company reputation. Below, we’ve summarized a few details about four of these top brands.
We encourage you to get quotes from several third-party providers to compare plans and costs to help you find the best plan for your car and your budget.