Are Extended Warranties Worth The Price?
Extended warranties apply to automobiles as well as other consumer products. They are normally not worth their cost. In fact, these “Extended Warranties” are not warranties at all. They are more properly called service contracts. These agreements are usually sold by car dealers for $1,000 to $3,000 with a new vehicle. Through a service contract, you pay an independent warranty company, an administrator, up front to pay for repairs for covered problems with your car in the future.
Car Dealers try to scare you into purchasing a service contract for your peace of mind after your factory warranty expires. This is because service contract sales are a huge profit maker for a car dealer. Typically, 50% or more of the selling price goes to the dealer as the seller. However, rarely do these “Extended Warranties” provide you with the protection that you are led to believe they have and would expect.
Most of these these contracts have exclusions like these:
Lack of Maintenance Records? Failure to retain and produce records that the vehicle was maintained in accordance with the manufacturer’s routine maintenance schedule. It is generally not enough to just maintain your vehicle. You must also be able to provide proof to the service contract administrator that the vehicle was maintained. No proof equals no coverage.
What about wear and tear? Parts in your car that normally wear out, such as brake shoes, and gaskets, shock observers, and even belts are usually not covered. These are considered normal maintenance items and are expected to wear out as your vehicle is used. Usually, no coverage here.
Failure of a Non-Covered Part? Repairs which are needed to cover a part caused by the failure of a non-covered part are excluded from coverage. This means that if a wear item such as a hose or gasket fails and this causes a major engine failure, the engine repair will not be covered.
“Investigative surgery” like you leave your contract is not going to cover “exploratory surgery” on your car to find out the problem is, unless the problem turns out to be covered. This sometimes means you’re going to pay part of the repair costs upfront before the garage even starts to investigate the problem.
Limited Choice of Repair Facilities?Many people also encounter difficulties in obtaining repairs for their vehicles because the service contract restricts the choice of repair facility. These agreements will require you to have your vehicle repaired at a specific or limited number of repair facilities. Sometimes, due to an Administrator’s track record, a repair facility will not honor the service contract and instead insist on payment from the consumer, leaving you to try and get reimbursed from the administrator.
With all of the above hurdles, it is hard to imagine receiving any peace of mind if you actually need to use your service contract. Additionally, with the quality of today’s vehicles the odds of needing a major repair during the first six years of your car’s life are slim. The bottom line is to save your money. In most situations you will be farther ahead monetarily and have greater peace of mind by saving your money for a rainy day.
Tags: Cars