What is an auto warranty?
An auto extended warranty is a vehicle service contract between the warranty company and you. This warranty can be extremely profitable for the car warranty companies, so it is important to be careful about this process. If you buy a Ford warranty, Ford would pay for repairs covered by the contract. Auto warranties are not insurance policies. Your service contract money is put in a “claims reserve account” that is insured in case the administrator goes bankrupt. This warranty is the most confusing, profitable product for insurance policies. The language is worded in a tricky manner and if you do not understand the subtleties you are in trouble. They have nothing to do with the original manufacturer’s car warranty on your car.
Auto warranty profitability is immense. One of the reasons they profit so much from their customers is the confusing nature of their programs. Many people do not understand the warranty fully and are unaware of potential scams within the process. If you buy a used car, you can get a used car extended warranty. If you get a rebate on your new car, it is smart to use your savings for a discount online extended auto warranty. Many are forty percent cheaper than car dealers’ warranties, have better wear and tear coverage, and you will likely still have money remaining from your rebate.
Types of auto warranties and possible scams for profit
There are Bumper To Bumper Auto Warranties, Intermediate Warranties, and Big Ticket Item Coverage. It is important to understand the limitations of the warranty as to where and by whom repairs can be done. Ask for a salesman to show you a printed copy of these limitations, because many times there may be slight restrictions as to who can repair your car and where. Make sure that if covered repairs require an authorization that it consists of no more than toll-free call. There are many catches to be aware of that, if ignored, may lead to unfair auto warranty profitability.
Another thing to be aware of is where your money is going and who is providing the financial backing for the warranty. The dealer may take the order, but it is usually someone else that administers the warranty and backs up the policy. Some warranty plans are handled by independent companies that are betting your car will not need major repair work, so by selling thousands of warranties they will get more from sales than they have to pay out in repairs. They play their odds to increase auto warranty profitability.
However, if the company providing the policy miscalculates and repair costs happen to outweigh the sales, the losers are those all who buy policies before the company files for bankruptcy. The mechanic will come to you for payment, which can be problematic. Warranty providers that maintain the best reputations address this concern by reinsuring their program through a major insurance company that backs up the warranty. Auto warranty profitability, then, is the split between the agent and the insurance company. So, the overall profitability of the warranty company is determined by the profitability of the program. There are many web sites online that suggest tips for consumers that might help you find the right auto warranty for your situation.
By Kristin Lockwood