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Just a few years ago the only place
that you could purchase an extended warranty for your
car was at the dealership. But the internet has changed
all that and now there are many options available
and often the dealership plan is not the best decision.
Following is a list of common questions about extended
warranties. If we don't answer your question here
please drop us an email and we will get right back
to you.
- Why should I buy an extended warranty?
Extended warranties are not always a good decision.
If you tend to trade cars about every three years,
if you lease, if you are financially able to pay
a large repair bill and can arrange alternate transportation
while your vehicle is being repaired, then you are
not a good candidate to purchase extended coverage.
On the other hand if you tend to keep your vehicle
for at least 5 years, if your lifestyle or job keeps
you on the road, if you sell your vehicle to a private
party when you are ready for a new one, if your
budget would not allow for a large repair bill,
or if the vehicle will be away from home (son or
daughter in college for example), than you are a
good candidate and should consider an extended warranty.
What are the advantages and disadvantages of
buying coverage from a dealership?
Advantages
1) If you purchase the extended warranty
when you buy a car, you can finance the warranty
with your car purchase. (However, you will be paying
interest on the extended warranty so depending upon
the price and the length of your loan you may be
tacking on an additional $100-$200 to the price of
the warranty)
2) If the dealership has their own rental
cars it would save you a step if your car is in
the shop for a needed repair.
Disadvantages
1) The price of the warranty is usually substantially
higher at the dealership.
2) Many contracts are sold as "bumper-to-bumper"
when it fact they are named component coverage.
Let me take a minute and define the types of coverage
available.
When you purchase an extended warranty there are
two different types of available coverage.
a) Named component - This type of warranty
will cover every component named in the fine print
of the contract. If the contract does not say "We
cover the water pump" than the water pump is
not covered.
b) Exclusionary - This type of warranty will
cover everything on your car with the exception
of a small list of items that the contract specifically
states that it will not cover. Usually exclusionary
coverage will mirror the manufacturers coverage
meaning that everything the manufacturer of your
car covers under their warranty the exclusionary
policy will cover also. (this is definitely the
type of policy to purchase if it is affordable).
You need time to read the contract to determine
if the coverage you think you are buying is really
the coverage you are buying. MANY companies (both
online and off) will use terms like "bumper-to-bumper"
when what you are really buying is named component
coverage. Don't be fooled.
3) You may need to return to the selling
dealer for any repairs.
4) Pay attention, this one is huge! The
selling dealership may be able to determine if they
will cover the repair!
That's right! The company who sold you the
contract may be able to decide if your repair will
be covered. Why is that a negative? Let me briefly
explain how this type of program often is set up
and you will see why this is not in your best interests.
The money collected when a service contract is sold
is generally broken down like this:
Let's say the contract cost you $1500:
$750 of that would be dealership profit
$750 would go to the administrator who would take
his cut of around $100 and he would put the balance
in a reserve account to pay for potential claims
(generally this is an insured account overseen by
a third party but sometimes the administrator also
is in charge of the reserves).
However, many dealerships will get back any money
left over at the expiration of your service contract.
So it is in their best interest to keep the claims
as low as possible.
While we are discussing this let me point out that
there are some extended warranty policies that let
the dealer control the reserve dollars. Depending
upon your tolerance for risk you may want to steer
clear of this type of contract. If the dealer uses
the money claims can't be paid. You would be surprised
at the number of dealerships that get caught up
in the cash flow that this type of program allows
which
is fine as long as the money keeps coming in but
if the economy hits a sour note and people are fixing
their car instead of trading the dealership may
run out of cash to pay claims.
I'm not trying to scare you just keep this
in mind as you shop for an extended warranty.
To wrap this section up let me highlight the type
of coverage you should purchase if you are going
to get an extended warranty:
- Look for exclusionary coverage. This mirrors
the manufacturers original warranty.
- Look for a per visit deductible (not a per repair)
- this means that if you have several items covered
by warranty you would only have to pay the deductible
one time instead of one deductible for each repaired
item.
With
our Premier and Peak Advatage Series, we offer
both a $100 deductible and a $0 deductible option.
Our Value Advantage Series has a standard $100
deductible with a $50 deductible option. This
deductible is per visit. Many other companies
charge a deductible on a per item basis.
Additionally, once a part is repaired or replaced
under our service plan, any deductible for future
repairs to that part are waived. -Warrantybynet.com
- Look for a separate administrator and a separate
insurance group - separate the people who sell you
the coverage from the people who make a decision
about what is covered and then make sure the money
for your contract is insured by a reputable insurance
company.
All
our programs are fully reinsured
by a company rated A++ (Superior) by A.M. Best and
Co. This is the highest insurance financial
strength rating. They have been in business since
1917 and have stockholder equity in excess of $2.8
billion. This company was chosen because of it's
longevity and ability to maintain leadership in
the reinsurance industry.
-Warrantybynet.com
- Look for the following types of coverage - overheating,
wear and tear, claims paid by administrator (not you
and then you have to wait to get reimbursed).
It is important to know the insurance company
that is behind any plan you own. A percentage of
the payments that are collected from our service
contract holders are deposited into an account that is
used strictly to pay future claims. All programs are
fully reinsured by a reinsurance company that has been
incorporated since 1917 and is rated rated A++
(superior) by A.M. Best and Company. Your claims are
paid directly to the repair facility of your choice
with a corporate credit card, therefore, you do not
have to pay for your repair and wait to get
reimbursed. This assures you that your claims will be
handled promptly and professionally.
-Warrantybynet.com
- Good any
place where a licensed mechanic is on duty (don't
get trapped into the "you have to come back here"
clause).
We make the repair process as simple as
possible. If your vehicle breaks down or is in
need of a repair, take it or have it towed to any
licensed repair facility and present your service
agreement to the Service Department. After they
diagnose the problem with the vehicle, they will call
our claims administrator toll-free and receive repair
authorization for all your covered repairs less a
deductible where applicable. All claims are paid
directly to the repair facility of your choice with a
corporate credit card, therefore, you do not have to
pay for your repair and wait to get reimbursed.
-Warrantybynet.com
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