Extended Warranties

Extended warranty contracts are basically insurance policies and are generally managed by third parties, such as GE Capital, Ryan Warranty Services, AAA, and credit unions. These policies are purchased to cover car repair expense in the event of a breakdown; how they work varies greatly. When purchasing an extended warranty, keep the following points in mind for the best coverage and best price.

• It's best to buy a policy before the factory warranty expires, usually around 3 years / 36,000 miles. The reason is that at this point you still meet "new car" policy criteria, which means more extensive coverage at a better price than "used car" coverage.
• You don't have to buy the service contract when you buy the car -- many companies sell great warranties independent of dealerships and car lots. The only benefit in buying a policy along with the new car is being able to roll the cost into the monthly payment.
• Warranties with "exclusionary" coverage offer the best protection. They cover all components, with just a few exceptions. Non-exclusionary warranties only cover the components that are listed. So, if a failed part isn't listed, it isn't covered.
• There are a few policies that require buyers to return to the dealer for warranty work - avoid these. It's always best to have the option to use your favorite auto repair shop when work is needed.
• Buy a policy that either doesn't cap the labor costs or allows for $100 or more per hour (the average rate in the Denver metro area).
• Look for warranties that charge one deductible per claim, not per procedure. The difference in cost to you could be substantial! (If you have a $50 deductible per claim, for example, and you're taking care of three warranty repairs in one visit, you'll pay $50 out of pocket. If you have a $50 deductible per procedure, this same visit will cost you $150!)
• Remember that extended warranties don't cover all repair costs in all situations. Diagnostic procedures, for example, aren't always covered, and when they are, they're rarely covered completely.
• It's worth your time to research the underwriting company of the warranty in question. Check the company's reputation with your state Attorney General's office or the Better Business Bureau.

Even comprehensive warranties can have some limitation clauses. Make sure you understand them! Among other things, these limitations can include:

• Procedures required in order to file a claim. (Authorizing repairs in advance, or meeting required maintenance schedules, for example).
• How repair costs are paid. (Directly by the company to the repair shop, or through reimbursement to you.)
• Whether the warranty covers items that haven't failed, but are worn and may affect safety, driveability, or related components. (A worn and loose suspension ball joint is a good example. Even if tire wear and handling are compromised, some warranties won't cover replacement of the ball joint unless it fails completely, even though this would cause a sudden loss of steering control!)