9-Step Guide to Deciding if an Extended Warranty is Right for You

Buying a new car can rank as one of the most stressful tasks in life. Questions such as, “what car should I buy”, “how much can I spend”, “what insurance policy do I take out”, and, last but not least, “should I purchase an extended warranty for my car?”

According to Kofi Anan, a former Secretary General of the United Nations, “Knowledge is power. Information is liberating.” Therefore, before you make any decisions with respect to the purchase of a car, it’s advisable to first research the answers to your questions.

extended warranty insurance, car warranty insurance

Buying a new car can rank as one of the most stressful tasks in life.
Photo source: autotrader.com

What is an extended warranty?

“An extended warranty is a vehicle service contract offered by a new car dealer to “wrap” the new car warranty and extend beyond it”. To help you decide whether you need an extended warranty, follow this simple guide.

Here is a 9-step guide to help you decide whether an extended warranty on your new vehicle is a requirement or not.

1.Check your car’s reliability rating.

A car’s reliability rating is a guide to the overall reliability of the vehicle. All cars have a Reliability Index figure which is available on websites such as the JD Power website. This rating gives you a picture of the total cost of car ownership by evaluating its cost, rate of failure, cost of services, as well as the inconvenience of having the vehicle repaired.

By looking at this rating for the make and model you are considering purchasing, you will be able to determine what the “after-purchase” costs of the car will probably be.

2.Does the extended warranty cover your car model?

Some extended warranty plans are limited only to certain car models. As a rule, Insurance companies tend to avoid car models with extremely high reliability rating –  the higher the reliability index, the more unreliable the car is known to be, and vice versa.

3.What does the extended warranty cover?

Most extended warranties are designed to cover car components that are high value components; yet, have a low risk of failing. They do not cover the repairs nor replacement of all the car parts. Insurance companies also take the vehicle age into account. For example, they will cover repairs to a car that is 4 years old, but not over five years old.

It is important to read the small print of the warranty plan and make sure that you understand exactly what the policy covers, as well as what it does not cover.

4.Decide what level of cover you should get.

Extended warranties have different levels of coverage and will, therefore, be priced accordingly. Choosing a plan that includes the engine and other major mechanical parts can be expensive, but may save you a lot more money in the long run. On the other hand, choosing a plan that covers less expensive parts will cost you less, but might cost you more in the long run.

5.Is the extended warranty transferable?

While new car warranties are not transferrable, extended warranties often are. If you decide to sell your car before the expiration of the warranty contract, then you may be able to pass it to the next owner, thus increasing the car value.

6.What is the cost of the excess per claim?

Most insurance companies require you to pay an excess every time you claim on the policy. Make sure you know how much excess you will be paying for each claim.  Again, if the excess amount is too high, it might not be worth claiming on, or even taking out, the extended warranty policy.

7.Determine whether the cost of the excess is greater than the repair cost.

When claiming against your policy, and the excess is more than you would normally pay for an average repair, then isn’t worth putting in the claim, or even taking out the specified extended warranty.

8.Compare an extended warranty with the manufacturer’s warranty.

Extended warranties are not always as comprehensive as your bumper-to-bumper warranty, which comes with a new car purchase. There are subtle differences between the two different types of policies. Make sure you understand what items your extended warranty covers and which items the car’s manufacturer’s warranty covers.

extended car warranty insurance, car extended warranty

Compare an extended warranty with the manufacturer’s warranty.
Photo source: neamb.com


9.Talk to a reputable repair shop.

If you’re still undecided, then you might want to get an unbiased opinion from an expert. Talk to the owner or manager of a reputable repair shop and ask their opinion of the different types of extended warranties.

Final Words.

As you can see, there is a substantial amount of research which needs to be done in order to determine whether an extended warranty is a good fit for your new car.

In summary, if any element of an extended warranty can cost more than the value of repairing or replacing the car part, then it is not worthwhile investing in the extended warranty.

Posted in Car Insurance Blog, New Car Extended Warranty Insurance

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