Guest Contributor: Craig Fitzgerald
Do you have a telephone? If so, chances are pretty good that you’ve gotten a call to tell you that your car’s warranty is out of date, and if you’re looking to avoid a lifetime of tens of thousands to repair your car, you’d better sign up for an extended warranty.
Here’s the lowdown: There is no such thing as an “extended warranty.” An “extended warranty” is simply a pre-paid maintenance plan. For a monthly or annual fee, you’re essentially paying for scheduled maintenance ahead of time, and the extended warranty company is hoping you never make a claim to get any of those things paid for.
There are reasons that a pre-paid maintenance plan might be a good idea, but there are also reasons you may want to avoid one entirely. Will you actually save money by paying for maintenance up front? It’s hard to say. But whatever you choose to do, it’s critical that you read the fine print on the contract BEFORE you sign it, so you know what you’re getting into.
Is a Pre-Paid Maintenance Plan Worth the Money?
It’s nearly impossible to find any information on what the actual cost of a prepaid maintenance plan is without going through the quote process for your actual car. But let’s say that the plan costs $850, which isn’t out of range.
According to AAA, the average cost of maintaining a car – not including things like gas, insurance, taxes, and the purchase price of the car – ends up being $0.09 per mile. So if you drive 15,000 miles per year, your maintenance cost is around $1,350.
Seems like a no-brainer, right? $850 for the maintenance plan for however many miles it covers (let’s say 100,000 or six years) versus $1,350 per year every year.
But that includes ALL maintenance, including oil changes, brake pads, tires, wiper blades, air filters, and a lot of other things that a prepaid maintenance contract may NOT cover.
What Components are Covered in the Contract?
Whether they call the plan an “extended warranty” or a “service contract,” the pitch is the same: Instead of being faced with a massive bill to rebuild or replace a transmission, the company foots the bill instead of you.
But the first thing you need to understand is exactly what the plan covers. Every single service contract has an explicit list of everything that the contract covers. Generally, none of these contracts cover things like brakes, tires, shocks, wiper blades, etc., so you’re on the hook for all of those regular maintenance items, which typically add up to around $500 per year.
In addition to the things that a prepaid maintenance plan covers, you also need to be aware of the things that the contract explicitly does not cover, in a section of the contract usually labeled “Exclusions.” For example, take a look at the contract for Endurance Warranty’s “Supreme” plan. That plan is specifically labeled as “exclusionary coverage,” which sure sounds like it’s going to cover things that a lot of plans don’t.
Only the fine print of the contract tells you explicitly what the plan does not cover, including:
thermostat housing, shock absorbers, carburetor, battery and battery cable/harness, standard transmission clutch assembly, friction clutch disc and pressure plate, distributor cap and rotor, safety restraint systems (including air bags), glass, lenses, sealed beams, light bulbs, LED lighting, fuses, circuit breakers, cellular phones, personal computers, and pre-heated car systems, game centers, speakers. Radio, compact disc player, and cassette player covered if manufacturer installed but limited to one thousand ($1,000) dollars repair or replacement costs, electronic transmitting/receiving devices, voice recognition systems, remote control consoles, radar detection devices, brake rotors and drums, all exhaust components, and the following emission components: EGR purge valve/solenoids/sensors, vacuum canister, vapor return canister, vapor return lines/valves, air pump/lines/valves, catalytic converter/filtering/sensors, gas cap/filler neck, weather strips, trim, moldings, bright metal chrome, upholstery and carpet, paint, outside ornamentation, bumpers, body sheet metal and panels, frame and structural body parts, vinyl and convertible tops, any convertible top assemblies, door handles, lift gate handles, tailgate handles, door bushings/bearings, hardware or linkages, tires, tire pressure sensors, wheel/rims, programming, reprogramming, or updating a component that has not mechanically failed. Any equipment not installed by the manufacturer. External nuts, bolts and fasteners are not covered unless specifically listed in the Schedule of Coverage (except where required in conjunction with a covered repair). Engine block and cylinder heads are not covered if damaged by overheating, freezing or warping.
That’s a lot of things not covered. So what you’re left with is things like engine failure and transmission failure. These things are absolutely expensive to fix, but also don’t fail with any kind of regularity the way that an exhaust component does.
How Does the Pre-Paid Maintenance Contract Pay a Claim?
The dream of everyone who signs up for one of these contracts is that they show up at the garage, figure out they need a transmission, and the shop just does it with no out-of-pocket expenses.
But the reality is not so clear-cut. One of Carchex’s contracts lays out the details on how to file a claim:
WE will reimburse the REPAIR FACILITY or YOU for the cost of the work performed on the VEHICLE that is covered by this AGREEMENT for the authorized amount, less the DEDUCTIBLE (if any). YOU must pay for any repair or service that is not covered by this AGREEMENT. WE will pay the REPAIR FACILITY by charge card on YOUR behalf for a covered repair. In some cases, it may be necessary for YOU to pay the repair bill in full. In such event, WE will reimburse YOU for the authorized cost of the repair, less any applicable DEDUCTIBLE
Other contracts vary widely. Some contracts require that you pay the entire bill up front and get reimbursed afterward. That seems less ideal that the thought that all of your repairs are going to be covered.
What is the Term of the Pre-paid Maintenance Contract?
Most reputable service plans have a range of options to suit your needs. For example, say you just bought a car with 77,000 miles that’s out of warranty from the original manufacturer. There are multiple plans that will provide a prepaid maintenance contract for 100,000 miles on top of your current mileage.
Is the Pre-Paid Maintenance Contract Transferable?
If you’re considering purchasing a prepaid maintenance plan, it’s a good idea to look into whether or not that contract is transferable to the next owner. It’s a selling point for the next owner to know that they can have the additional protection afforded by such a plan. Usually, transferring a contract requires a nominal fee.
Does your Pre-Paid Maintenance Plan offer Towing, Roadside Assistance, and Rental?
Most prepaid maintenance plans or extended warranties have some kind of roadside assistance plan to help you if your car has left you stranded. It’s nice to have and may save you a few bucks a year in having to buy a roadside assistance plan elsewhere.
If you’re truly interested in saving money on car repairs, first, check in to see what’s covered by your manufacturer’s original warranty. That’s an actual “warranty” against defects or other issues, and depending on the kind of car you’re driving, might cover drivetrain components for 10 years or 100,000 miles. Other things like emissions-related components are covered by a federally mandated emissions warranty of eight years or 100,000 miles.
The bottom line is that maintaining a car is expensive, whether you decide to pay for the maintenance up front or not. The disappointing trap a lot of people fall into is thinking that everything is going to be covered, when in actuality, service contracts typically don’t cover the regular costly maintenance items that need to be replaced on a regular basis.
Craig Fitzgerald began his automotive writing career in 1996, at AutoSite.com, one of the first online resources for car buyers. Over the years, he’s written for the Boston Globe, Forbes, and Hagerty. For seven years, he was the editor at Hemmings Sports & Exotic Car, and today, he’s the automotive editor at Drive magazine. He’s dad to a son and daughter, and plays rude guitar in a garage band in Worcester, Massachusetts.