Extended Warranties: Are They Worth It?

When choosing an extended warranty plan there are a few you have to choose from and each has their own pros and cons.

The manufacturer provider has a factory-backed, dealer repair network nationwide. This pretty much means no haggling about repair, price, or components. The drawbacks to having a manufacturer warranty are they require the highest upfront costs and your dealer network might be limited in your area. The dealer provider does have lower up-front costs and you can buy your plan and service the car at the same place. The disadvantage to this warranty is that they usually have only one service point. So if they can't fix it, then who do you call? And another provider is an independent provider which generally offers the lowest cost (usually between 30-50 percent less than manufacturer plans), offers most coverage choices for dealers or local repair shops. Third-party warranty programs are usually their only business. And the downside to having this warranty is the repair shop coverage might not be as promised. Some are "here today, gone tomorrow" companies, unfortunately. Usually people like to go with the manufacturer provider for their extended warranty, but I seem to think that choosing an independent provider would be the best choice economically. Regardless of which provider you choose there are certainly a number of things to look for and look out for. Consumers can be overwhelmed by the dizzying assortment of plans available to them. If you do a little homework beforehand (like always), it is quite easy to separate the good plans from the not so good plans.

There are a few things you can look out for to spot a good plan when you find one. If the plan offers a corporate credit card to pay for the services you must have done, the ability to choose dealership or repair shop to fix any problems with your vehicle, the warranty is transferable, trip-interruption coverage, free loaner car in case of an accident and BBB (Better Business Bureau) certified.

To spot a bad plan look for things like out of pocket funds to cover any repairs, specific caps on repair costs, having a large number of exclusions on the plan, dealership pressure to purchase a plan, non-transferable and the company lacking any strong record of customer satisfaction.

Many plans will specify if replacement parts must be either new or remanufactured and that the choice of those parts is at the discretion of the provider. A lot of consumers are shocked at this piece of information, but you can’t expect a provider to pay for an unreliable repair that they will have to fix again in several months. Ultimately, they are going to use the least-expensive part available that offers reliable service. You should always check to make sure that the programs on your plan are insured and reinsured and that the company who is offering the plan will continue to pay for any claims made for the life of the contract. This could be the most important thing to search for when it comes to choosing a plan and a provider. And of course if you purchase a plan from a dealership or a third-party independent provider that you investigate the company you are purchasing from. These companies should be able to offer a good, strong retail history, adequate financial reserves and should be highly rated by the BBB.