White Paper - Researching and Selecting an Automobile Extended Warranty Provider (Part 2)

The Extended Warranty Contract…

There are as many variations in warranty contracts as there are models of cars.  If you know where to look, comparing them is quite easy. Never take the marketing hype on a web site or the explanation of a salesperson as to exact coverage details. Read the contract – the devil is in the details.

Definitions…

Each car warranty contract will have a section called “Definitions”. The terms defined here are used throughout the contract. Knowing what they mean and what to look for will allow you to judge the level of coverage offered.

The warranty administrator will be named here; now you know what company to research.

How a contract defines what it will pay for is often found here. Look for the term(s) failure, breakdown or mechanical breakdown. Read these definitions very carefully as they determine the type of coverage you will be receiving.

The broadest and best level of coverage, commonly referred to as wear-and-tear is what you want. Wear-and-tear coverage will often be defined as “a Failure will be deemed to have occurred when a covered part has worn beyond the manufacturer's tolerances”. Few warranty companies offer wear-and-tear coverage for the full term of the warranty. Some offer no wear-and-tear coverage and others only cover wear-and-tear failures until the odometer reaches 50,000 miles.

Lesser coverages will only pay for mechanical breakdowns. These extended warranties define "mechanical breakdown" as a defect in parts and workmanship as supplied by the manufacturer, or a defect that makes the part unable to perform the function for which it was designed. Often, they will state that the gradual reduction in operating performance (wear-and-tear) is not covered. Service contracts that exclude wear and tear will not cover repairs needed because a part’s performance has gradually deteriorated because of normal wear and tear, unless a mechanical breakdown has occurred. As vehicles age, most repairs fall into this category.

The more miles on a car when a repair becomes necessary, the more likely it is that the repair will be needed because a part wore out, rather than because the part broke due to poor manufacturing.

Terms and Conditions…

Term of contract – Does coverage start the day you buy coverage or the in-service date (the original purchase date of the vehicle)?

Parts and Labor – Does the extended warranty contract restrict payments to national labor guides? If so, plan on sharing in the cost of each repair needed. Does the warranty contract allow the use of new parts or does it call for used and recycled parts? Will diagnostic charges be paid for? What about sales tax?

Deductible – If you select a plan with a deductible, how is it applied? The best extended warranties will apply the deductible on a repair visit basis. In other words, no matter how many items need to be repaired, you will pay only one deductible. Beware of plans where you are required to pay a deductible on each part needed for a repair.

Complaint Resolution – The best extended warranties will offer third party (often the American Arbitration Association) complaint resolution if a dispute can not be handled between you and the warranty administrator.  Beware of warranty contracts that severely limit your rights should a dispute arise. Often, you will be required to handle disputes in the county the warranty company is located in.

Exclusions- It is vitally important to read through the list of excluded items. This is an area where many things can be hidden.

Some companies hide their wear-and-tear exclusion in this section of the contract (i.e. the gradual reduction in operating performance is not covered).

Common parts and repair costs can also be excluded from repairs (CV boots, seals & gaskets, stereo systems and speakers, shop supplies, fluid removal fees, nuts/bolts/fasteners [often a cause of the failure], repairs where a Technical Service Bulleting has been issued,