The Truth About Extended Auto Warranty Contracts

Reader Question: 
I am considering an extended auto warranty contract which one do you recommend?

Dear concerned car owner,

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Automobile Extended warranty contracts usually don't pay for themselves. In my experience I have found that most of the extended auto warranties contracts that I had to make a claim on paid very little-if any-of the repair cost. Most of the extended auto warranty contracts will list excluded items, and unfortunately those items are usually what will fail. The parts that are covered by the warranty contract are not parts that have the problems. I find a lot of the contracts list a lot of covered parts, but most of the parts on the list are not applicable for the cars on the road today.

The other day a customer showed me the automobile extended warranty contract that she was considering and I could only find four items that pertained to her car that would be covered. She would still have to pay a deductible for each claim, and the policy proved to not be a good deal for her. Take a copy of the policy to your mechanic and get their opinion. The mechanic is the one that will be talking to the claims department anyway, so you might as well find out if your mechanic would want to do business with the automobile extended warranty company before you buy.

I personally do not like to talk to the auto extended warranties people on the phone. They ask me questions that I am sometimes not in a position to answer, like "what was the cause of the brake master cylinder failure." If I knew that I could design one that would not fail in the first place. They usually want me to negotiate my prices to "fit" their pay policy, and tell me what parts they will pay for and what parts are not covered.

The overall feeling that I get when I do business with most of these extended auto warranties is not a very pleasant one for me. I will accept them from my loyal and regular customers, but if you are a first time customer and want me to make a claim for you, I might pass on the job. Read the list of covered parts, if you do not know, or have not heard of, most of the names listed, then it is probably a bunch of hype to make the extended warranty contract sound highly technical and impressive to the layman.

The list sounds great and fills the page, but there is no real protection for the consumer. If a covered part does fail, the shop has to call the claim office and talk to a representative and give an estimate. This sounds easy, but it can become a bartering game between the shop and the claims officer about what the parts cost, or the shop's labor rate, or any other part that was damaged by the failure of the covered part.

This can take some time to process and get the claim approved and will not be very rewarding for the shop, and eventually for the customer. There will be a deductible to pay by the customer, and on some large claims the automobile extended warranty company might send out an independent appraiser for on-site inspection before giving the authorization to repair.

I have seen the automobile extended warranty company pay for a broken water pump but not pay for the broken timing belt that was caused by the faulty water pump in the first place. In this scenario the warranty company paid $120.00 and the customer paid $290.00 to cover the cost of the timing belt.

Remember, you are dealing with an insurance company and they hate to pay claims! I think it is better to put the money that you would have spent on the contract in a "car repair" mutual fund account and hope you don't have to dip into it very often. If you are buying a Jaguar or BMW or something along those lines, then I might consider buying the extended warranty, but if you are buying a Honda Accord, then I think you will be wasting your money.

(P.S. From my experience, a Honda Accord is one of the best cars to own. They are well built and reliable, as well as relatively inexpensive to purchase and maintain).

If you already bought new or used cars without getting an extended warranty, you can still purchase one as long as the vehicle is within certain mileage limits. Vehicles that are still covered by the manufacturer's original warranty usually qualify for new car rates; vehicles with expired warranties are all rated as used cars. Visit both automobile extended warranty sites for details.

If you own a BMW or Jaguar you might need my next book When Your Car Repair Bills Exceed Your Mortgage

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