Shopping for an Extended Warranty

An extended service contract, commonly referred to as an extended warranty, is really an insurance policy that will pay for the cost of specific repairs to your vehicle.

When a vehicle is brand new, the manufacturer guarantees it for a certain period of time and pays for any repairs that it may need, other than routine maintenance.

After a few years, if anything on the vehicle breaks it's up to you to get it fixed-and on today's technologically advanced vehicles that may mean significant costs.

Although more and more automakers are extending the original warranty offered with a new vehicle, the manufacturer's warranty may be very limited in scope.

After the initial "bumper-to-bumper warranty", longer factory warranties may only cover the engine, transmission and other drivetrain components and may not be transferable to other owners when you sell the vehicle.

Do You Need an Extended Service Contract?
Only you can answer this question, because you don't know if you will ever need to use an extended service contract even if you do buy it.

It really comes down to your personal comfort level and how much of the risk of future repairs you are willing to assume.

While most vehicles will need repairs during the time you own them, some will not require any more than routine maintenance-which is not typically covered by an extended service contract.

Other vehicles will require unexpected-and sometimes expensive-repairs, which is the real reason for an extended service contract.

Bob Carlson, owner of Carlson Auto of Cottage Grove in Cottage Grove, Minn., told MSN Autos that while extended service contracts definitely have a place in the market, he doesn't recommend them for every vehicle.

"We tell our customers if they are going to buy a contract, bring in the literature and let us take a look at it," explained Carlson, who has owned an independent auto repair shop for nearly 20 years. "We can tell them if the contract they are looking at will cover the known problem areas for the vehicle that they own."

To tailor the coverage to your specific needs, most companies offer different levels of coverage for the level of protection that you are interested in. You have to determine what might encounter down the road before deciding on the coverage that works best for you.

Research and Decide
If your vehicle is brand new and you plan to sell it before the bumper-to-bumper warranty expires, you probably don't need an extended service contract. If you might keep the car longer, you may want to buy an extended service contract while the vehicle is still under factory warranty.

In addition to protecting the vehicle while you own it, an extended service contract may increase the vehicle's resale value.

Charlie Vogelheim, editor of Kelley Blue Book, told MSN Autos that "one of the factors making one car worth more than another is whatever peace of mind you can derive. Because you are buying an unknown, any warranty that is still intact will add to the peace of mind of the new owner and increase the value of the vehicle."

Some owners want protection from a major, expensive repair, while others are looking to cover any repair that may be needed, even if they are fairly minor. Bumper-to-bumper protection is available, but is more expensive than coverage that only covers major components. Be sure to compare "breakdown" coverage and "wear-and-tear" coverage to understand the differences.

Just like buying a vehicle, one of the best ways to compare different programs is on the Internet. Not only can you compare the coverage and other features of different programs, but you can get free, no-obligation quotes online, in a matter of minutes.

Dealers, manufacturers, independent companies, and service shops all offer policies, with detailed information and special offers available online. Check the company's history; particularly how long it has been in business, and check with the Better Business Bureau. It is also a good idea to check with the dealer or independent service shop that maintains your vehicle to see what policies they already deal with and would recommend.

Waiting Periods and Payment Methods
Some contracts require that you schedule and pay for a vehicle inspection before the policy goes into effect, while others have a time and/or mileage waiting period.

Both of these procedures are designed to prevent a person from purchasing a contract to cover a repair of a pre-existing condition. You can't wait until your vehicle needs a repair and then buy a policy.

Verify how the plan pays for repairs and how the deductible is applied. Many contracts pay the service shop directly with a company credit card when the repair is completed, eliminating the need for you to pay for the repair and apply for reimbursement.

If you use a shop regularly, find out if they are familiar with the payment process for the policy that you are considering. Also determine if there is a pre-approval process to be sure that any covered claims are paid.

Is the deductible applied for each trip to the shop or is it applied to every repair? In other words, if you have more than one repair done on the same trip to the shop, will you be responsible for more than one deductible?

Compare the Coverage and the Price
Does the policy cover diagnostic time, roadside assistance, rental car charges and towing? Many policies do, but be sure to check the details if you want these different forms of coverage. Diagnostic time can be more expensive than the actual repair if the problem is difficult to diagnose.

Just as flexibility and negotiation are factors in the purchase of many automobiles, there is often flexibility in the pricing of a service contract, especially for policies offered by dealers or service shops. Be sure to compare prices. Special offers may already seem discounted, but don't be afraid to make an offer.

If you will you be traveling or moving to another state, is the contract honored in all states, including Canada and Mexico? Also, what are the restrictions or limitations on emergency repairs when you are traveling?

Review the Actual Contract
Remember to read the actual contract once you receive it. Review the coverage in detail, paying particular attention to the "exclusions" or "what is not covered" section.

Like any insurance contract, the coverage is really defined by what is not covered. Do not rely on promotional or sales materials-the contract is the binding document.

If you have any questions, get answers right away. Don't wait until you need to use the policy to learn the process for repair approval and payment.