Extended Car Warranties: 3 Things to Know

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With most Money Talks News stories, we come up with a topic, then pound the pavement looking for the video we need and the people we need to interview. This story, however, came to us. The lady you'll see in the video is Debbie, a media relations consultant I've worked with in the past. She called me with this story so she could prevent others from running into the same extended-warranty ditch she did. Check it out, then meet me below for more detail.

Debbie was embarrassed to appear in this story because she felt foolish for continuing to pay $15 every month for coverage long after it had expired. But you can't blame her for forgetting details of a policy six years after she signed up for it. I certainly would have. That's why if you're going to travel this road, you need to keep your eye on these three things. (See also: Are Extended Warranties Ever a Good Deal?)

1. Know what it covers, and when it expires

One way you might try to keep track of an extended warranty is to make yourself a quick “crib-sheet” with your basic policy information and keep it with your registration and proof of insurance in your glove box. Then, every year when you replace your proof of insurance with a new one, a glance at your sheet will tell you if your extended warranty is still in force and you'll get a reminder of your policies particulars.

And that brings up something crucial about extended car warranties: they’re not actually warranties in the technical sense. They’re really insurance policies. And like insurance policies, they can vary wildly concerning what’s covered, what’s not, deductibles, and transferability. So when you’re shopping policies, you’ve really got to dig into the fine print and compare. Don’t have the time? Don’t spend a dime.

Be aware that newer cars with fancy gadgets often cost a ton to repair. Here’s a story I did on that: High Tech Cars Mean Costly Repairs.

2. Shop an extended warranty like you shop a car

By this I mean don’t buy the first thing that strikes your fancy. Kick a few tires. And keep in mind that in addition to the dealer, extended warranties are available from insurance companies, companies that specialize in just these policies and even some credit unions. And you don't have to buy one when your car is new: they're available pretty much any time (although the older your car, the more expensive the policy). And wherever you shop, don’t forget the final tip…

3. Ask questions: lots of them

• Is there a deductible? How much?
• Is it per visit or per repair? (In other words, if you bring your car in and they find three separate things wrong, is there a deductible for each, or just one for the visit?)
• Can you bring your car anywhere or just to the dealer?
• Do you have to pay the bill and submit it to the warranty company, or will they pay the repair shop directly?
• What’s specifically excluded?
• Is the warranty transferable?
• Is it a “break-down” warranty (covering only parts that actually break) or a “wear-and-tear” warranty (paying for parts that just plain wear out)?
• How long will it last (both in terms of years and miles)?
• How much does it cost?”

Make sure the policy you're considering dovetails with the manufacturer’s warranty: in other words, if your manufacturer’s warranty is already covering something, there’s no need to pay for protection you already have.

One final tip: an extended warranty is only as good as the company that backs it. If they disappear, so does your protection. So if it’s an insurance company, make sure they have at least an “A” rating from either AM Best or Standard & Poors. If I was writing this several years ago, I would have said this wasn’t a concern if you were buying your warranty directly from the manufacturer. These days, however, I’m not so sure.

I've never had an extended warranty. I tend to buy my cars older and I'd rather gamble that I can them on the road for less money than a warranty would cost. And I also have a motorcycle as a second mode of transport if my car goes in the shop. But if you're the type that needs to feel protected, protect yourself from a bad extended warranty buy by following these simple rules as you approach these things. For more stories on cars, visit the auto section of my website.