Extended Warranties and Vehicle Protection Plans: A Beginner’s Guide

Vehicle Protection Plan

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When it comes to extended vehicle warranties and optional protection plans, consumers and experts are divided. Some fervently believe they are a waste of money. Others swear by them, having used them to save thousands of dollars in repair costs. Regardless, one truth undercuts these differences in opinion. That truth is that you don’t want to wait until you are sitting across from a smooth-talking salesperson before considering whether you want one or not. That’s a losing situation for you, every time. Instead, do your research ahead of time. This will help you analyze offers with greater confidence. You can also sometimes purchase these plans after you buy your vehicle. This guide will explain the essentials of extended warranties and vehicle protection plans. It covers definitions, key features, pros and cons, and other factors to consider when deciding whether or not to buy one.

A Note About Manufacturer Warranties

To answer this question, you first need to understand a bit about manufacturer warranties. Also known as factory warranties, manufacturer warranties typically only apply to new cars. They are sometimes also attached to certified pre-owned vehicles, which are resold through an affiliated dealer.

The terms of these warranties vary among vehicle manufacturers. That said, factory warranties are usually limited in scope. They only cover repair or replacement costs of certain vehicle systems. In most cases, they apply especially to components prone to design-related breakdowns. Examples include the following:

  • Mechanical components.
  • Electrical components.
  • Factory-installed parts.

What They Don’t Cover…

Manufacturers warranties usually don’t cover the following parts of the car, though.

  • Brake pads.
  • Clutches.
  • Pressure plates.
  • Tires and rubber parts.

Standard factory warranties expire after a set amount of time or after the vehicle has been driven a set amount of miles. You’ve probably heard car commercials proclaim their vehicles are covered for “five years or 80,000 miles.” They are talking about the factory warranty. Sometimes the powertrain of the vehicle is covered by a separate warranty.

What Are Extended Warranties or Vehicle Protection Plans?

By contrast, extended warranties offer additional protections that go beyond the limits of factory warranties. That means more years or more miles of coverage before you’re on your own, should the vehicle break down. They can be offered by either the manufacturer, an auto dealer, or sometimes even a third party company.

Some providers call extended warranties “vehicle protection plans.” Somewhat confusingly, the term “vehicle protection plan” can also refer to a different type of add-on. The key difference to note in this respect is that third-party companies sometimes offer vehicle protection plans. They are not exclusive to manufacturers and new or resale dealers. For example, automotive clubs and insurance companies both provide vehicle protection plans. Insurers may alternately refer to them as “mechanical breakdown coverage.”

In any case, extended warranties and vehicle protection plans are very similar. You can consider the two terms functionally interchangeable.

What Do These Plans Cover?

Standard extended warranties and vehicle protection plans go beyond the limits of factory warranties. They often cover additional problems, systems, components, and services. Here are some of the things a vehicle extended warranty might cover.

  • The powertrain (including the engine, transmission, and drivetrain).
  • Rust and corrosion.
  • Wear and tear on working parts and mechanical components.
  • Roadside assistance (including towing, trip interruption, and related costs).

What is “Bumper-to-Bumper” Coverage?

The most complete type of extended warranty is called a bumper-to-bumper warranty. As the name implies, it covers almost every system and part in the vehicle. However, some plans exclude certain components. These exclusions vary among providers and manufacturers. So you should carefully review any bumper-to-bumper warranty you are considering. Make a special note of anything they specifically don’t cover.

Bumper-to-bumper warranties usually protect the following items.

  • All major and minor vehicle systems.
  • Climate control systems.
  • Safety features.
  • Steering.
  • Technology-based vehicle components

When purchased through manufacturers and dealers, most bumper-to-bumper warranties come with limits. An upper threshold of three years or 36,000 miles (whichever comes first) is a commonly used standard. Third-party providers of vehicle protection plans may attach broader or narrower limits, or no such limits at all. It pays to shop around, if possible.

How Do Extended Warranties and Vehicle Protection Plans Work?

Extended warranties cover all systems, vehicle components, and services specified by the contract. Financial limits may apply, as do a complex set of restrictions, limitations, and conditions. These vary, so make sure you read and understand all the fine print. For example, the extended warranty may not protect you if the problem resulted from grossly negligent driving or vehicle care standards. So you can’t skip years of oil changes and then get your engine replaced for free when it seizes up.

It is also common for extended warranties and vehicle protection plans to be structured like auto insurance policies. Deductibles may apply, in addition to financial coverage limits.

Conditional Coverage

You may also have to meet certain conditions to access your benefits. For instance, many extended warranties can only be activated 30 days or more after purchase. Providers do this so that vehicle owners cannot buy a plan in order to finance repairs they already know they need. This basically equates to fraud, so don’t try to get away with this shady tactic when faced with an expensive repair bill.

Consumers can usually purchase vehicle protection plans when they buy a new or used car or truck. Third-party issuers also offer them after the fact to vehicle owners who later decide they would prefer the peace of mind they provide. If you buy an extended warranty later on, you may need to tell the provider about any known problems with the car. This is kind of like the pre-existing medical condition disclosures consumers must make when getting health insurance coverage. Your warranty provider may even insist on having their own mechanic inspect the vehicle before issuing you any coverage.

Pros of Extended Warranties

Like all optional consumer protections, extended warranties have benefits and drawbacks. Their major advantages include the following items.

  • Peace of Mind: Having an extended warranty protects you from major, unexpected expenses related to vehicle breakdowns and repairs. For car-dependent people on tight budgets, they provide valuable peace of mind.
  • Potential Cost Savings: A 2017 American Automobile Association (AAA) study found that the average car repair bill runs $500 to $600. It also noted one-third of motorists cannot cover such expenses without using credit. Vehicle protection plans shield you from these costs and the associated credit risks.
  • Customization: Some dealers and most third-party providers offer the opportunity to customize their plans. You can pick and choose what coverage is or isn’t included. This ensures that you pay only for what you want or need, and that you don’t get roped into buying unnecessary or excessive coverage.
  • A Broad Coverage Scope: Extended warranties might offer the only way to cover systems and components excluded from most manufacturer warranties. Importantly, many also cover the advanced and computerized technologies increasingly integrated into modern passenger vehicles.

Cons of Extended Warranties

On the other hand, commonly cited disadvantages and downsides of extended warranties include the following factors.

  • They Add to Costs: Extended warranties usually work out to hundreds of dollars per year. If you purchase them when you acquire the car from a dealer, they are often rolled in with the sale price. This makes them easier to finance, but still — the money adds up. Especially if you end up paying for that extended warranty at 4.9% over six years.
  • They May Not Cover Everything: A vehicle protection plan is kind of like a bet. You purchase one wagering that you will need to use it, and therefore save money. However, you also expose yourself to risks — especially if you don’t opt for a bumper-to-bumper plan. You could purchase one, only to need expensive repairs for a component or system that is not covered. You’ll pay for that out of your own pocket.
  • Protection Plans Might Limit Your Repair Options: Some people like using a particular independent mechanic. However, many vehicle protection plans stipulate that you must take the vehicle to a specially authorized or manufacturer-affiliated repair center. This may disqualify your preferred technician from fixing your vehicle.
  • You Might Never Use It: You could easily own your car for years without ever needing to claim the benefits you are paying for. That’s what the dealers or third-parties are banking on, at least. Factor this in when performing your cost-benefit analysis.

When is an Extended Warranty or Vehicle Protection Plan a Good Idea?

Prevailing wisdom suggests your best bet is to buy a car with above-average dependability and low repair costs. In such cases, extended warranties are rarely necessary. That said, vehicle protection plans offer the most value to consumers who fit the following categories.

  • Buying a used vehicle with an expired factory warranty.
  • Purchasing a model with a spotty reliability record.
  • Buying a higher-value used vehicle.
  • Buying a car with higher-than-average repair costs.
  • Planning to own the vehicle for a long time.

Other Financial Factors To Consider

When considering an extended warranty, personal finance experts recommend evaluating the following factors.

  • The age of the car (older cars are more likely to break down).
  • The car’s mileage (providers tend to offer the best rates and most complete coverage for vehicles with less than 80,000 miles).
  • How many miles you drive each year (the less you drive, the less likely your car will need major repairs).
  • Common mechanical problems and repair costs associated with the year, make, and model of the car.
  • Whether or not you can afford to cover expensive repairs out-of-pocket.
  • Whether or not the warranty is transferable to a new owner (transferable warranties can increase the car’s resale value).

Finally, remember that the cost of an extended warranty may be negotiable. This is more likely to be the case if you acquire one when purchasing the car from a dealer. You may even be able to talk the salesperson into including the extended warranty at no extra cost. If you receive such an offer, you have little to lose by accepting it.

The Bottom Line

Expert opinions about extended warranties and vehicle protection plans are divided. Some say they add unnecessary costs to vehicle ownership. Others believe they provide valuable financial protections that make them well worthwhile.

Ultimately, buying an extended warranty is a personal decision. Adding one can make sense if you are buying a used car with an expired factory warranty. They also offer value if you plan to own the car for a long time, and if the make and model has higher-than-usual repair costs. In the end, they are more like taking out an extra insurance policy. If you never need to use it, you’ve paid all that money for nothing. However, it could really save your budget if an unexpected problem arises.

Vehicle Protection Plan

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Jim Greene

Jim Greene

Jim Greene is a freelance writer based in the Toronto, Canada area. He has been writing professionally since 2001 and has an extensive professional background in consumer research, personal finance and economics.

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