Is An Extended Car Warranty Worth It?

Buying a car is an investment. Second to a home, it is most likely the largest single purchase that most people will ever make. And like most purchases of great value, we aim to protect them, hence the invention of the Extended Warranty. But many questions remain. Are extended automobile warranties a value-added proposition that can help protect you from unexpected repair costs? Or are they a scam designed to rip off the unwary?

Let’s look a little deeper and determine what an extended warranty is, what it covers and whether it could be the right choice for you.

What is an Extended Warranty?

An extended warranty is essentially a supplemental service agreement designed to cover a specific set of repairs and vehicle-related expenses. The warranty contract is between you, the buyer, and a service provider and is purchased separately from any manufacturer warranty that comes with the purchase of a new vehicle. An extended warranty can typically be purchased at any point during a vehicle’s lifespan, although exclusions exist.

It’s important to note that an extended warranty, or service contract, is not technically defined as a warranty by the Federal Trade Commission. Since they are unregulated by the federal government, the terms and coverages available vary dramatically from state to state and provider to provider. So be sure to read the fine print—twice—to ensure that the length of the contract, the terms and the coverages meet your needs and don’t contain any disqualifying factors regarding mileage, vehicle age or additional particular exclusionary circumstances. Pay special attention if the car in question has a checkered past and was reported stolen or involved in an accident.

Typically, these warranties or contracts are purchased through a dealership, the automaker or an entirely different and independent third-party service provider. That noted, it also means that you can customize your coverages and contract to suit your needs as an owner.

What Does a Typical Extended Warranty Plan Cover?

Extended Warranties are typically chosen by buyers that intend to maintain ownership of their vehicle beyond the initial warranty. Like manufacturer warranties, most extended warranties are designed to cover all or most of the cost of a specific set of repairs arising from vehicle ownership. Unlike manufacturer warranties, there is often a deductible involved. Repairs to major systems like the engine, powertrain and transmission are typically covered.

If your vehicle needs to remain in the shop for an extended period, rental vehicle and towing fees are sometimes covered. But, again, be sure to read the details of your contract to determine what deductibles might be required and the length of time the rental car is guaranteed. You’ll also want to confirm whether your warranty requires you to pay for services upfront and then file for reimbursement or if the warranty company pays the repair shop, rental agency or service provider directly.

What Repairs are Typically Excluded from an Extended Warranty?

While major part systems are typically covered in full or at least partially, repairs to parts that wear out regularly as a part of normal usage and fall under ‘regularly scheduled maintenance items are not. Buyers should expect to be responsible for oil changes, brake, power steering, transmission fluid topping off or replacement, tire replacement and rotation, lighting, and windshield wipers.

How Can an Extended Warranty be Voided?

Since Extended Warranties vary wildly by state and provider, these plans require a very specific set of circumstances and conditions in which a claim will be accepted, approved and paid. Typically, a contract section labeled “Driver Responsibility” or “Buyer Responsibilities” will spell out the details of the circumstances where your claim will be honored or denied.

It will also clearly state your responsibilities as a buyer and owner and lay out the steps required to receive and maintain coverage. It will also specify what sort of actions will invalidate your contract. Typically, failure to adhere to the vehicle’s regularly scheduled maintenance plan and modifying the vehicle will invalidate your agreement.

For example, if you choose not to get your oil changed regularly and the engine suffers a breakdown, the necessary repairs will not be covered. Likewise, modifying the structure, suspension or mechanical systems of your vehicle, although they might make it more efficient, will most likely result in a denied claim or even void your extended warranty.

Also, most issuing agencies specify the vehicle is not to be used for commercial purposes like ride- or car-sharing, delivery driving or other business interest. That said, the gig economy is still new for insurers, and specialized plans designed for this type of work may evolve in the future. If you have this in mind, give any potential warranty issuers full disclosure before signing to void a dispute later.

It is also important to note that in the case of a used vehicle, repairs needed to systems or parts considered “pre-existing” from the date of the plan’s purchase would not be covered under a new extended warranty plan. Additionally, some warranties have a waiting period before allowing claims.

Again, read the fine print on your potential plan, and ask questions before signing on the dotted line.

Is it Worth It?

It could be.

If you intend to hang on to the vehicle for a long time, are prepared and equipped to maintain your car regularly, monitor the mileage, avoid modifying it and abide by the plan’s terms and conditions, it could be a smart option for you and your wallet. Double so if you have no mechanical ability and don’t have a long-term relationship with a shop.

Do your due diligence and ensure that you partner with a reputable company. The Federal Trade Commission recommends that you check their data against your state’s consumer protection office. Our research indicates these independent extended warranty providers have decent reputations. 

If your vehicle is just a few years old, still under the factory warranty (you can check that here), and you intend to adhere to the regularly scheduled care plan, you can probably wait on an extended warranty. Owners who perform their own maintenance or modify their vehicles are probably not ideal candidates either. But an extended warranty could make sense if your vehicle’s manufacturer warranty coverage has just expired or you’ve recently purchased a used car in decent shape. 

As with any warranty, the key is to read the fine print and ask questions before you sign.