Auto repair insurance

Is it really useful or is it a scam? I am thinking of getting one, but no one I know has one.

This is called an extended warranty. It is usually not a good idea.

Because the selling agents (usually car dealers) get a huge commission, they are overpriced. There is a long list of excuses for not paying such as deductibles and items not covered. The companies backing the warranties are often financially unsound and go out of business. When you want to file a claim, they no longer exist.

The best way to minimize repair expenses is to buy a fundamentally reliable car (see Consumer Reports for recommendations) and maintain it by the book. While the original manufacturer’s warranty is still in force, it’s wisest to go to a dealer for service. That way they can’t weasel out of a warranty claim by blaming a non-dealer mechanic. After the warranty expires and you are paying for everything out of your own pocket, use a good independent shop for all work.

I have seen extended warranties save alot of people alot of money. Espically in the areas of transmission repair(remember chrysler mini-vans of the 90’s) and in the AC area. AC can be extremely expensive to repair and there are known problems with some manufactures compressors. By a trusted plan and know what you are buying. These plans have been lifesavers

It’s not really a scam, since you are going into this with you eyes wide open. It’s just very expensive repair insurance, and something you don’t really need if you put the money in the bank for the time you had a repair.

I kept track of 11 consumer durable items over 5 years and talled up all the extended warranty costs these items would have incurred ($1100) and compared them with the actual out-of pocket costs I incurred on repairs not covered by the initial 1 year warranty. The repairs came to $155!!!

So, draw your own conclusions; paying $1100 for $155 worth of benefits is ludicrous. It’s not quite that bad on car repair insurance, but you get the picture. If you are a sloppy and bad driver and buy an unreliable car, you could possibly come out ahead moneywise.

I had it on my 2003 Olds Silhouette, but it came as part of the new car deal; I didn’t pay for it. But it did come in handy. The transmission died at 56,000 miles and it was replaced, with a new one, by the dealer at no cost. They even gave us a car to use for 5 days while the work was done. I would not buy it myself, but in this case it would have been worth it even if I paid for it.

Personally, I think you are better off putting some money aside in a “repair fund” every month and self-insuring against unexpected issues.

First, recognize that, like any kind of insurance, the insurer knows the statistics, and sets the rates so he will make a profit. (The folk wisdom here is that the insurer makes a LOT of profit on these extended warranties.) So, on the average, you will lose money on the deal. The question to ask yourself is: “Can I afford the possible repairs, or is the insurance premium a better buy?” To answer that question you must look very carefully at what the warranty covers. Many of them are near-scams, giving no coverage for the big ticket items. And, of course, you would need data on likelihood of needing repairs; but, again, the insurer probably has better data than you can get.

I know. I once sucked in for one on a used Camry. $650 down the drain.

I’m also made leery of these warranties by their heavy marketing, with the “Your car’s warranty is about to expire” pitch. While cleaning out my mother-in-law’s apartment this Spring we got one of those robot calls – a year after she died. She never drove. Her husband passed away about 35 years ago, and hadn’t owned a car for about 25 years before that. Sheesh!!

Extended warranties aren’t referred to as Insurance for a reason, they don’t want to deal with the regulations an insurance company has to.

Most states have some sort of guaranty fund that an insurer has to pay into in case they go broke and leave people with claims unpaid. These warranty companys don’t, and all they’ve got to do is overpay their executives, file chapter whatever, and their liability is over.

An insurer has to have certain amounts of capitol to guarantee they can pay their claims, warranty companies don’t.

You don’t see reputed names in the insurance business selling these kinds of things for a reason. If you look into one, look into who the company is, who owns it and who’s backing it. Are they going to be there when you need them?

The other major difference between an insurer and these fly by night warranty outfits is the fact that the state insurance commission regulates what an insurance policy covers and what it doesn’t. Yes, people get surprised as to what’s covered and what’s not on a regular insurance policy, but the fact is, it’s pretty well standard between companies. Things we can’t legally get away with denying coverage for an unregulated warranty company can and they have a reputation for doing so.


Thanks for the semantic/legal clarification (really!). I now can understand why insurance companies would not want customers to think that these warranties are “insurance” – and why the warranty sellers would.

Extended warranties aren’t referred to as Insurance for a reason, they don’t want to deal with the regulations an insurance company has to.

The BIGGEST sellers of these extended warranties are insurance companies. It’s so big that some companies have started their own sub divisions. Many of the big insurance companies own several of these warranty companies. Insurance companies are making MILLIONS off of these policies. They are by far the highest profit items they sell.

The biggest problem with them is that they only cover UP TO 100K miles. Any car on the road should be able to reach 100k trouble free miles. If your basic coverage is 36k miles…the extended warranty is only for 64k miles more. And the cost is very very high.

Agree Mike; they cover mostly things that are not likely to break, and any car should be able to go 100,000 miles or 5 years without major non-wear repairs. However, I do believe that a reckless driver who does spotty (bare minimum) maintenance and buys an unreliable car such as a Grand Cherokee, could come out ahead on an extended warranty.

In consumer goods, Sears is one of the worst for pushing these warranties. I bought a Sears Best water heater with a 10 year factory warranty, and had a call one year later that my warranty was about to expire! When I mentioned the unit I had bought and the 10 years, she said that her package referred to the Installation Labor!! of the heater. The commisssion on these things is 50% and the sellers often are barely literate.

In consumer goods, Sears is one of the worst for pushing these warranties.

I can’t agree more…they tried to sell us an extended warranty on a hair dryer my wife bought…a Shop Vac…even tried to sell a warranty on a MATTRESS.

Something I always wondered…Do they offer Good Better and Best at the Sears Hair Styles Salons???

I would not call it a scam. However the ways it is often sold would qualify for that name.

Let’s face it. The one selling it makes money, their employer makes money the insurance company makes money and the average customer is going to pay all those cost, plus the average cost of repairs for every one who buys it plus the cost of administering it. I doubt if 50% of what you pay ever gets paid back to the policy holders. After all if they pay out more than they charge, why would they sell it.

If it makes you feel good and safe and if you know it will not cover everything, and that feeling is worth the cost to you, go ahead and buy it, but don’t buy it thinking it is a good investment.

My experience with extended warranty is very good. Iam speaking as a tech. We used GMPP and Ryan. You could by what ever level you wanted from powertrain only to a policy that covered everything(power seats, powerwindows etc.) I foun these companies easier to work with than GM approvals came very quickly and upsales went smoothly

My mechanic suggest his clients put $125 per month in a repair/replacement fund for all service items, and draw from there. I agree.

Most disaster stories I hear about are from owners who took out long term loans and then could barely make the payments, let alone do proper maintenance. Sort of like the real estate credit meltdown!

Generally I see these extended warrantys as pure profit for the seller.
for some they are invalid unless you perform all the regular maintenance at the same (sellers) garage, so between the overpriced maintenance and the warranty underperformance, I woudl go for the “buy a more reliable car and forget the warranty” idea.

A co-worker of mine relays this story.
Her brother bought a used truck and paid about $2000 extra for a warranty. within the warranty period the AT gave out.
They refused to pay because he had non-standard tyres/wheels fitted. However, these were the same that were on the vehicle when purchased. So, if something is unfit to be warrantied, why offer one that will not be honored later?. Hence my conclusion they are a scam.

To me the only essential and often expensive weak point on many vehicles is the AT, so get a very cheap warranty to cover that only, if you must.

I agree, that sounds like a reasonable amount to set aside. Then when you have a little surprise, it doesn’t turn into a big problem. At the moment I’m spending about $5K to replace an engine that finally lost compression after 430K miles, still much cheaper than buying a new car. It appears than lots of folks just replace cars because it’s easier to finance a new car than pay for a major repair, very short sighted IMO.