There is a lot of good advice to be found here, but I just want to add a bit of advice for the OP:
Although a dedicated savings account that you will designate for nothing but car repairs is a better approach, if you feel that you will sleep better with the protection of an extended warranty, then–by all means–you should enroll in one. However, be sure to buy an extended warranty from the vehicle manufacturer, NOT one from the many aftermarket providers.
The aftermarket providers may actually charge less than the vehicle mfr, but the aftermarket guys are notorious for two things:
>Lots of “weasel clauses” that cause them to either totally deny your claim, or to pay–at most–an extremely small percentage of the claim.
>Going out of business after a few years, thus taking all of your money with them, with no recourse on your part. This is actually VERY common.
All of that being said, the price that you were quoted was high, and because a substantial portion of that price consists of dealer markup of the mfr’s warranty price, the price is almost always negotiable with the dealership, potentially saving you hundreds of $$ from the originally-quoted price.