Extended Warranties

OEM or Independent
If you plan to keep the new vehicle for a number of years and are seriously considering the peace of mind provided by an extended warranty, realize that the coverage doesn't have to be purchased from the same dealer where you buy your car—or even at the same time you sign the papers. Remember, this coverage kicks in after the manufacturer's warranty expires, so don't feel pressured into buying something that you wouldn't use for three or more years anyway. In fact, extended warranties can often be purchased within 24 months or 24,000 miles at no additional surcharge.


Also, dealers set their own prices on everything, including extended warranties. Although the dealer might push an "aftermarket" warranty that's underwritten by an independent company (because the dealership likely makes the highest commission on this policy), it should also offer a factory-backed warranty. If the dealership claims to have no knowledge of the automaker's "extended service plan," remember that the only advantage to buying the coverage at the same time as the car is that the price can be added into the financing. Another dealership will probably be happy to sell you the automaker's extended coverage.


Generally, the factory-backed extended warranty has fewer restrictions than an aftermarket one. For example, the factory policy might allow service at any of its dealerships while the aftermarket one might stipulate that repairs can only be done at the dealership who sold you the car (or the extended-coverage policy). Also, the factory and its dealers already have business relationships that include reimbursed for warranty work. An aftermarket policy might require that the failure be inspected and approved before service can be authorized. Or, the customer might have to front the entire repair bill, then get reimbursed by the insurer (less the deductible) once it's satisfied that the claim meets all of the policy's criteria. Incidentally, independent insurers can be researched at A.M. Best and Standard & Poor's. Companies that have less than an "A" rating often have inferior claims-resolution records. Internet research will also provide an idea of the cost of various extended-warranty policies.


In a nutshell, an extended warranty shares many similar components with a car-insurance policy. Make sure to read all of the fine print. For example, deductibles might either be applied per visit or per repair. This means that if multiple problems are solved in one session, you pay the deductible only once under per-visit coverage; if air conditioning and the transmission are fixed during the same visit, you still pay two deductibles under a per-repair policy.


Know what parts are covered and under what conditions. Competent home mechanics may want to save a few dollars by buying extended coverage for major powertrain components only and fixing any more-minor problems themselves. Extended-coverage policies might also address the circumstances under which the problem occurred. "Breakdown" failures might be covered but not problems that resulted for normal wear and tear. Some policies might also stipulate that manufacturer-recommended service intervals be documented for the claim to be honored. If this is the case, save all service records and even parts-store receipts if you decide to change your own oil or perform other routine maintenance yourself.