For most people, second to a house, a car is the second most expensive purchase they make. A warranty is the best way to protect that investment. Having a warranty means that you are insulated from unexpected, expensive repair costs.
The warranty administrator will be paying them, rather than you. The size of the vehicle repair industry testifies to a fact we all know intuitively: cars break down. Consumer Reports states that the average rate of problems is 55 for every 100 vehicles. Anyone who keeps a vehicle more than 3 years is likely to need the services of a repair facility at least once, but often more. .
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Average Repair Costs:
Car repairs are costly. As vehicles become more
complex, and with labor costs rising, repairs are
becoming even more The average cost to repair an air
conditioning system for example is $875. Repairs
costs are expected to increase 35% over five years.
That means that an $875 repair today will be air
conditioner repair today is going to cost about
$1277 five years from now. Even one major repair can
pay for a warranty, and most people can expect many
more than only one repair
In addition to paying for your repair, most
warranties also include additional features such as
emergency roadside assistance, rental and towing
benefits, vehicle lockout benefit, flat tire
assistance, and even travel discounts.
A vehicle’s value is enhanced considerably by being
protected by a warranty. The NADA wholesale vehicle
guide advises users that vehicles with warranties
should be considered as being in “excellent
condition,” rather than simply good. Further,
private sellers offering a warranty with the vehicle
are at a distinct advantage in relation to cars
being sold “as-is.”
Type of Vehicle
Warranties:
Other names for extended warranties are vehicle
service contracts, extended service agreements, and
mechanical breakdown insurance. For the sake of
clarity, we will use the term extended warranty to
encompass each type of plan.
An extended warranty is an agreement between you and
the warranty administrator which states that if a
part or component covered by the policy breaks, or
in some cases wears out, the warranty company will
pay to have it repaired.
Extended warranties frequently include benefits such
as emergency roadside assistance, lock-out
assistance, flat tire assistance, fuel and fluid
delivery, battery jump, flat tire repair, and
towing. Most also include rental car and towing
benefits, too. More comprehensive plans may also
provide options for DVD entertainment and navigation
systems, if coverage for those is not standard.
Warranty companies are governed by both federal and
state laws, the latter of which vary. Any reputable
warranty company will be protected by an insurance
company that guarantees the obligations of the
warranty company. The most reliable warranty
companies carry an “A” rating from A.M. Best &
Company. They are an independent insurance evaluator
which has a 100-year old history of rating insurance
companies for financial soundness.
Mechanical Breakdown Insurance (MBI) deserves a
separate word. MBI is essentially an extended
warranty, but it has a different legal standing. MBI
is available in California and is regulated and by
the California Department of Insurance. In certain
states, MBI is not regulated. Reputable warranty
companies and their brokers understand the
difference and will offer you plans that conforms to
applicable state laws.
Warranty Basics:
There are a variety of vehicle warranties available.
Understanding which one is best for you will help
you avoid frustration, and will help you save time
and money in the future. There are manufacturer’s
warranties, extended vehicle service contracts
(extended warranties), mechanical breakdown
insurance, and product warranties. These various
types provide different levels of coverage, and are
regulated by various laws both federal and state.
Types of Coverage:
Extended Warranties range from bumper to bumper
protection all the way to basic powertrain, with
many levels in the middle. The auto warranty
industry has created three major categories, and
every extended warranties belongs to one of these.
These are bumper to bumper, stated component, and
Powertrain coverage.
Vehicle Maintenance:
It’s important to remember with any warranty
that you must perform the routine maintenance as
indicated by the manufacturer. If your manufacturer
recommends changing the oil every 3,000 miles, and
you don’t change it for 15,000 miles, the warranty
may be voided, aside from any damage caused by the
lack of fresh oil!
Vehicle Eligibility:
Eligibility for particular plans is determined
by the vehicle’s age, mileage, make and model.
Additional features such as four-wheel-drive,
turbo/super charged, diesel engine, and number of
cylinders, also affect eligibility. Vehicle history
and usage are also considered. That is, whether a
vehicle is used for commercial purposes, or whether
it has a reconstructed or salvage title. Small
surcharges may apply in certain instances relating
to those issues. Each extended warranty has specific
requirements, and a warranty company or broker will
offer policies that best match your vehicle and
needs.
Some options, or ways in which the vehicle may be
used, will require an “optional coverage
supplement”, warranty terminology for a surcharge.
These include engines larger than 8 cylinders,
vehicles used for plowing snow, dual rear-wheel
trucks, salvaged or branded titles, vehicles with
lift kits, lemon law vehicles, vehicles used for
towing, vehicles exceeding 1 ton GVW, police or
emergency vehicles, or vehicles used as a taxi.
Optional coverage supplements will vary by warranty
company.
It’s important to know your vehicle’s features well
before contacting a warranty company or broker. It
is crucial to give correct information about your
vehicle, such as whether your vehicle is 4WD or AWD,
whether it has a salvage title, or if it is being
used commercially. Each of those can affect the
warranty price. Forgetting or otherwise neglecting
to mention these kind of features or modifications
when setting up your plan, will result in your
warranty being voided.
How Much Will It Cost?
There are no hard and fast rules. Reputable
warranty companies and warranty brokers are in
business to make money and they wouldn’t be in
business for long if you weren’t saving money. Do
expect to pay a fair price for a fair policy and
don’t be fooled by a cheap policy with very little
coverage. After all it’s all about saving money and
peace of mind.
What are The Policy Terms?
The term of vehicle warranty coverage is stated as
months and/or miles. Typically, but not always, the
more months and/or miles the policy covers, the more
costly it will be. Examples of coverage terms are 36
months / 45,000 miles, 60 months / 75,000 miles, or
120 months / 100,000 miles.
It is important to understand that all policies are
in effect until “whichever comes first”. Meaning,
for a plan with coverage for 2 years and 24,000
miles, and you drive 50,000 miles in two years, your
warranty will expire in two years as soon as you
reach the 24,000 miles. It’s critical to factor in
your driving habits, and to focus more on the plan’s
mileage allowance.
Warranties are typically available from 12 months to
120 months. In some cases, the additional price for
adding another year is very inexpensive, sometimes
less than $100, and should be asked about when
speaking with a warranty company or broker.
The mileage aspect can be most confusing, but it is
also the most critical. Warranty plans use the term
mileage to refer to either the total number of miles
on the odometer, or to additional miles beyond what
is currently on your odometer. This is a crucial
distinction to note when arranging your coverage.
As an example, if you have a vehicle with 50,000
miles, and the warranty plan provides coverage for
covers 48 months /100,000 miles on the odometer, you
are only covered for 50,000 miles, or until your
odometer reads 100,000 miles. If you have a plan
that covers you for 100,000 additional miles, then
you are protected until your odometer reads 150,000
miles.
Normally, for bumper to bumper plans, mileage stated
in terms of total miles on the odometer, rather than
additional miles. Conversely, stated component plans
present mileage as additional mileage to what your
odometer currently reads. Some plans, typically
short term, stated component ones, may offer
unlimited mileage. Ensure that you understand the
mileage terms of the plans you are researching, so
that the coverage being offered is clear.
Insurance Company Ratings:
A. M. Best
Standard & Poor's
State Insurance Departments
Federal Government/Agencies:
FTC
FCC
Association of Insurance Commissioners
Motorist Assurance Program
National Do Not Call Registry
Professional Organizations:
Better Business Bureau
Automotive Service Excellence
Vehicle Protection Association (VPA)
Auto Pricing and Research:
Kelley Blue Book
Edmund's
IntelliChoice
CARFAX
ConsumerReports.org
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