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Are extended service contracts worth it?

Is there a rule of thumb to use to determine when it might be worth purchasing an extended service contract?

My specific case, a 2001 Toyota Avalon (current blue book $5,500) with 144,000 miles. I intend to keep it another 3 years and the contract which covers engine, transmission, drive axle and engine cooling components would cost me $2,992 payable monthly over two years at no interest. There is a $100 deductible associated with each claim. The policy is transferable or refunded on a pro-rated basis if I do decide to sell within the three years. It is offered through the dealership ( a reputable one in this area) which gives me confidence that they will stand behind it.

As much as I would like to hear comments on the general case, I am particularly interested to hear thoughts on my current situation.

Spending $3000 for extended warranty for a $5500 seems like a poor investment to me. I mean that’s more than half the value of your car, a very reliable car at that.

Rule of thumb ?
Thumbs down.
— we have beat this horse to death here in this forum ----

It’s just an insurance policy like any other… a savings account gamble.
Who is offering this ? Toyota or some other yayhoo that want’s your money ?

Put the same money in a savings account…YOUR savings account, not theirs.
When you never use it…it’s still YOURS ! :slight_smile:

No!!! That’s an outrageous price to cover a $5500 car. The typical maximum payout is about half, or about $1550; the rest is profit fort the seller. Even if there is NO FINE PRINT, you are paying over 50% of the car’s value to insure that something MIGHT go wrong.

If, say, there is a 25% chance that you will end up with a problem that totals the car during those 3 three years, you expected payout is 25/100x$5500=$1375, a lot less than what you are asked to pay.That’s the way companies do risk analysis, and why large companies are SELF-INSURED!

With a well-maintained Avalon with 144,000 miles on it, the chance of having a $2992 breakdown in 3 years is probably about 5%. So your EXPECTED VALUE is 5/100x$2992=$149.60!
If the car is not well maintained, and you and your family are really bad drivers, there is a remote possibility you might come out ahead.

If you were offered this coverage on an 11 year old FIAT with that many miles you would likely come out ahead.

In my own case having bought 11 appliances, and having declined the Extended Warranties (which would have cost me $1150), my total outlay for repairs during the covered period was all of $132! Not very good odds.

If you want to feel secure, spend $100 and have a good mechanic go over the car and identify what might break dring the next 3 years, assuming you drive 144,000/11=13,090 miles per year.

There are a couple of different kinds of extended warranties.

In general, “factory certified used cars” (which are simply used cars that you pay an extra $2k for in order to buy an extended warranty from the factory) are not too bad because they are pretty comprehensive and any dealer will do the work with no hassle or paperwork. The peace of mind alone is worth something… My wife bought a 3-year-old BMW that was certified to 7 years or 100k miles. We never claimed a nickel on it until two months before it expired. Her fuel pump failed. BMW towed it to the dealer, and the dealer found a couple of other things that needed fixing such that we recovered the full value of her “certified used car” warranty.

Aftermarket extended warranties are always heavy on sales commission and light on coverage. It is a gamble and that deck is stacked heavily against you.

I understand that some car insurance companies offer mechanical repair insurance that is not so bad, but I have never known anyone who had one of those policies.

In your case, I agree with the other responses. On a 12-year-old Avalon with reasonable miles that is running well now, I would not even consider a $3k extended warranty.

In todays car it is rairly the motor or trans that fails, its all the little things that start going wrong that will cost you money. The AC going out, a power window stop working etc, NONE of this is covered under your warrany… WASTE OF MONEY IN YOUR CASE !!