Are Extended Auto Warranties Worth It?

23 Oct

Extended Auto Warranty logoOne common thing when you buy a new or used vehicle from a dealer is that they will try and sell you some form of extended auto warranty.  Are they really a good buy, or are they just another way for the salesman to try to make a little extra on the deal by getting a commission from the warranty company?

 What is an Extended Auto Policy?

An extended auto warranty is an insurance policy offered by either the manufacturer, or an independent warranty company to cover the costs of fixing your vehicle if it breaks.

The policies normally last for either a fixed amount of time, or a set number of miles, and the policy comes to an end when the first one of those is reached. For example if you get a 3 year, 30,000 mile warranty it will run out when you hit 30,000 miles even if that is only 1 year from when you bought it.

As these warranties are insurance policies, their cost is based on risk, if you have a newer van that is considered reliable, with low miles, and only want a warranty that lasts for a few years or a few tens of thousands of miles you will pay a lot less that someone with an older, unreliable vehicle that is looking to buy a 5 year and 80,000 mile warranty.

Also, a lot of these policies have upper limits, in that they will not cover a car once it is more than 7 years old, or has more than 100,000 miles.

What is Normally Covered and Excluded?

These type of policies normally cover the replacement of any part that is required due to failure during normal use.  What this means is that if your gearbox goes out, or your engine blows up, the warranty would cover the costs of having that either fixed or replaced.

Normally Covered Items

  • Engine
  • Transmission
  • Differential
  • AC and Cooling systems
  • Engine/Fuel Injection Computers

Normally Excluded Items

Most of the excluded items are considered ‘wear and tear’ items, that means they wear out normally during the use of the vehicle, such as:

  • Tires
  • Brake pads and rotors
  • Filters
  • Windshield wiper blades

The Fine Print

One thing that is common to almost all of these policies is some amount of fine print.  Normally they require that your vehicle is used in a normal fashion, so if you blow up the engine while racing at the drag strip that will not be covered.

Another common exclusion is if the vehicle has been modified, this is not normally a problem for us minivan owners, but if you are buying an import that you are planning on souping up, or if you have a domestic muscle car that you are planning to tune, these modifications can invalidate your extended warranty.

Is the Warranty Worth Buying?

Ultimately, only you can decide if an extended auto warranty is worth it to you.  The law of averages (which is how the insurance companies make money) says that any repairs required during the time your vehicle is covered by the policy will cost less than you paid for the policy.  What this actually means is that the company will make enough money off all of the vehicles that had no problems or small problems to be able to pay to fix the vehicle that had major problems, and still make some money.

So, averages say that your van is unlikely to need more work than could be covered by the cost of not buying the policy, but that doesn’t fix your vehicle if you are one of the few who has a major problem.

My guiding advise would be, if you know nothing about vehicle maintenance, and you depend of the vehicle daily to get to work, or your kids to school, then the investment in the extended warranty is probably worth it, purely for peace of mind, even if you never need it.

On the other hand, if you are already comfortable changing your own oil, and can change out your brake pads and rotors (or know a friend who does, and you don’t mind helping and learning at the same time) then it may make sense to skip the warranty, and be ready to do the work yourself.