Why might you want a warranty?
Most owners of cars and other major purchases like the idea of having some kind of security or guarantee that something will be done for them if they have a problem with their purchase within a reasonable amount of time. Warranties, or agreements that the dealer will replace or repair problems within a certain amount of time after purchase, are often the solution for that issue.
An extended warranty for a car is a service contract between the car owner and the car warranty company. Extended car warranties are available for both new and used cars. The three typical types of extended warranties for new cars are bumper to bumper, or exclusionary warranties, which cover nearly all parts of the car and only exclude parts on an exclusion list; intermediate warranties, which usually cover more items than basic warranties such as anti-lock brakes or power functions; and big ticket item warranties, which cover major items but may not cover wear and tear or some of the items intermediate warranties cover.
What can a warranty do for you?
Depending on what package you choose, the extended warranty will pick up for a given amount of time after the original dealer’s warranty ends, so you don’t have to fall victim to your car falling apart as soon as the original warranty’s coverage is no longer valid. In addition to protecting you from sudden expenses because of problems with your car, many extended car warranties include things like towing, car rental, toll free assistance, trip interruption, lost key lockout, and other benefits.
Costs and Considerations
It is best to purchase an extended warranty immediately when you buy the car, because the longer you wait, the more it will cost. In general, the most complete coverage will be part of a bumper to bumper warranty. These are usually considered top of the line plans and are the most expensive, but they offer the least risk of a needed part or repair not being covered by the warranty.
When purchasing extended car warranties, it is better to choose a company whose claims reserve account is insured by a high quality insurance company or risk retention group, to protect you if the company goes bankrupt. Some car dealers sell warranties that are not backed up this way, so it is important to find out before you sign an agreement. If the insurance company is reinsured, you will have even more protection in case the company goes bankrupt and the first insurance company cannot handle all the claims. Some warranty companies will not give you this information; if you find a company that makes it readily available to you, you can be sure your investment in a warranty is safe.
Although many car dealers sell extended warranties, you can often get a better deal by purchasing directly from the warranty company, rather than through the car dealer. Car dealers are free to resell the warranties at prices as high as they choose, and often do not offer to show you the contract before you buy.
Whether or not you need an extended warranty is a decision you must make in regards to how long you plan to have the car and how ready you are to pay for sudden expenses if you should have to. Extended car warranties, however, are not a bad deal for anyone who plans to have their car long enough for the dealer’s original warranty to end, because the price you pay for an extended warranty now is much cheaper than you would pay several years in the future given inflation, and often just one or two repairs or part replacements will recover the cost of the warranty.
By Kristin Cleveland