All you ever wanted to know about extended automobile warranties but were afraid to ask…

In buying an extended vehicle warranty, as in so many other aspects of life, it's important to be fully informed before making your purchase. Before committing to an extended warranty and an auto warranty company, one should take the time to fully explore the ins and outs of the various coverage's and providers. While many coverage's look similar; there are huge differences in the language used in the different contracts such as…

• Who administers (pays the claims) the coverage?

• How does a company define what they will pay for?

• Will the coverage provider pay the retail labor rate your dealer charges?

• What does the fine print say?

• What are reliable independent resources?

It is a good idea to request copies of the auto warranty contracts you are considering, and then compare them to determine which best fits your needs. If the auto warranty company will not let you see this before you buy then you should look elsewhere.

Here are some questions you should have answered before purchasing your automobile warranty:

What is the value of an automobile extended warranty?

There are many reasons to purchase an automobile extended warranty. Your vehicle is one of your biggest investments. An extended warranty will insure it is always in the best mechanical condition. With the complexity of today's vehicles, one repair can often cost more than the extended warranty. Hourly labor rates average over $80.00 nationwide with many markets over $100.00 per hour. An extended car warranty will provide you with peace of mind, knowing you only pay one price no matter how many repairs you car needs. Beware of auto warranty contracts that severely limit the amount they will pay for a claim or for total claims over the life of the auto warranty contract.

Have consumer publications weighed in on automobile extended warranties?

What company stands behind the car warranty?

We referred earlier to the term “administrator”. An extended auto warranty may be backed by a third-party warranty company or by the vehicle's manufacturer. Knowing who will be administering your policy can give you insight into the potential weaknesses of the coverage you're considering and their ability to pay claims. Administrators act as claims adjusters, authorizing the payment of claims to the service repair facility under the contract terms.

Third party warranties score very highly when it comes to ease of use according to J.D. Powers & Associates. Surprisingly, third-party warranties are often less expensive and offer broader coverage levels than those offered by the manufacturer. If you decide to purchase a third-party warranty, make sure they have the financial resources to meet their obligations under your contract. After all, the ultimate measure of a warranty company is ensuring that your claims are paid quickly and easily.

One should also look into the performance record of the car warranty administrator. The Internet offers numerous sites where one can research whether or not a company stands behind its promises. Here are a few sites to get you started.

• Better Business Bureau

• WebAssured.com

• Dun & Bradstreet

There are many web sites offering warranties today. Very few web sites are direct administrators of the car warranties they sell; in other words, they have nothing to do with paying your claim. Prices vary considerably as do coverages. Remember, it is the administrator (the company that pays your claims) of the warranty that you should thoroughly investigate. Some web sites even go as far as changing their website name to hide their poor consumer records.

Does the auto warranty company possess the necessary licenses/registrations to sell coverage in your state?

Many of the 50 states have licensing/registration requirements to make sure extended auto warranty companies are financially sound and/or properly insured. A growing number of states, including New York , Florida and California have very strict requirements when it comes to issuing licenses. While your state may not regulate coverage, searching for a company that meets the requirements in the states that do can help you to narrow your search.

What does the extended car warranty cover? How does it define what it will pay for?

There is no standard protection or level of coverage from one provider to the next. You should be familiar with the terms of the coverage you are looking at and ask questions when the terms look vague or ambiguous. Extended vehicle warranties come in many levels of coverage with many different definitions on what the coverage will pay for. Some car extended warranties cover mechanical breakdown, while better warranties will cover wear & tear failures, seals & gaskets, the emissions system and not exclude damage due to overheating.

Bumper-to-Bumper Automobile Warranties (aka Exclusionary Auto Warranties):

Bumper-to-bumper auto warranties represent the highest level of coverage available. Be careful, many companies use this term quite loosely. By definition, a bumper-to-bumper plan is exclusionary, that is, it will only list the parts NOT covered, just like your factory warranty. Make sure to read the full list of the exclusions as they are not all the same. If an extended warranty lists the items that it covers, it is NOT a true bumper-to-bumper warranty.

Named Component Auto Warranties

These types of car warranties (yes, there are many different levels of named component coverages) will list the parts that are covered. If a part is not on the list, it is not covered. One can buy a car warranty with as few as 50 or so parts covered to as many as 750 with varying levels in-between. Don't be fooled, while a named component automobile warranty may look as complete as a true bumper-to-bumper warranty, they are not nearly as comprehensive.

Wrap Warranties

Wrap warranties, are specialized bumper-to-bumper warranties for particular vehicles with powertrain warranties (engine and transmissions only) that run longer than the vehicle's standard warranty (usually 3 years/36,000 miles).

Where can you take your vehicle for repairs? How are claims handled?

An extended warranty from the manufacturer will require that you obtain service only from them. You want to look for a warranty that gives you more than one service facility to choose from. You'll appreciate this if the vehicle ever needs service while you're on a road trip, miles away from home. Many people prefer to go elsewhere for repairs as car dealers often charge higher rates and have long waiting times for repairs to be done. Many third party auto warranties will allow you to choose where you have your repairs done. The better, more established companies can tell you if they have already done business with your repair facility of choice.

Beware of companies that require you to handle the entire claims process and wait to be reimbursed. Better auto warranty companies will allow you to take your vehicle to the repair facility of your choice and leave the rest to them and paying the repair facility for the repairs immediately via credit card with no paperwork or billing hassles.

What is the nature of the deductible?

Fully investigate a warranty's deductible before signing on the dotted line. Consider not only its amount, but also whether it's per repair visit or per repair. With a per visit deductible, each visit to the shop will run you a fixed amount, regardless of how many parts are repaired; a per repair deductible applies to each serviced part. What sounds like a minor difference could have a major impact on your wallet.

Is the warranty transferable?

Some warranties end when the person who bought the warranty sells the car. A warranty that allows you to transfer it to a new buyer is preferable; it's also an excellent selling point for prospective buyers and an added value when you decide to sell your car.

What exactly is the extent of the auto warranty coverage?

Know what's covered -- and what's not covered -- by the extended auto warranty you're considering. Does the contract only cover mechanical breakdown? These are very limiting plans. Examples of common repairs that may not be covered under a mechanical breakdown plan are valve jobs, piston rings, slow moving power windows, suspensions problems and many others.

Look for coverage that includes wear and tear failures. Under a "breakdowns" warranty, coverage is extended only to parts that break. Not all parts fail due to breakage; some need to be replaced because they've worn down over a period of time. A "wear-and-tear" vehicle warranty extends coverage to worn-down parts in need of replacement.

Hint: Look in the contract under the definitions section. If you see the term "mechanical breakdown" or "gradual reduction in operating performance" you are not getting a wear and tear plan.

Overheating -- regardless of its cause -- isn't covered in many warranties. Thus, if overheating occurred due to problems with an expensive part such as your radiator, you will be stuck with a hefty repair bill. If an extended auto warranty excludes damage due to overheating, you can bet you will find other huge coverage loopholes in the coverage contract.

Additionally, some "entry level" contracts don't cover ABS brakes and many of the luxury options common in today's vehicles, so if your vehicle has these features, you should consider upgrading to a higher level of coverage.

When will the auto extended warranty expire?

Some automobile extended warranties have terms that start from the original in-service date (the original purchase date) of your car. This is a sales tactic that companies use to make the contracts appear to have a longer coverage term. If you purchase an extended warranty that begins the day you buy it, the date of expiration will be clearly defined.

I'm still covered by the manufacturer's warranty. Why buy it now?

A common misconception is that by waiting to purchase your extended auto warranty, you will get coverage for a longer time at the same price. While you can purchase coverage at any time, the cost for coverage rises as the vehicle ages and accrues mileage, much like life insurance costs rise as we age. Put another way, you are buying tomorrow's coverage at today's rates.

What risks do I have if I delay purchasing coverage?

• Coverage costs rise annually as parts and labor costs rise. Labor rates have risen by an average of $20 per hour in the past 3 years.

• As the vehicle ages and more repair data becomes available, many vehicles are placed into higher rate classes. Once you buy coverage, your rate class can not change.

• As the vehicle accrues mileage, it moves into higher rate classes.

My vehicle is out of warranty. What about inspections?

The inspection process is designed to protect you from having a claim denied due to a pre-existing condition. You should be aware that a high percentage of vehicle warranty claims that are denied cite pre-existing conditions as the reason. Of course, those companies do not inspect your vehicle prior to issuing you coverage. An inspection protects you from this.

The better and more reliable vehicle warranty providers will require that an independent inspection of your vehicle be done before coverage is initiated. This inspection protects both the consumer and warranty company and keeps coverage costs down.

"In looking at some of your competitors, they did not require an inspection for an out of warranty vehicle like you did. They tried selling this to me as a benefit. The fact of the matter is, how can they cover a vehicle that has no factory warranty without inspecting it? I imagine a lot of people fall for this tactic and end up with claims being denied for pre-existing conditions. You need to promote this factor and save people from making decisions based on convenience.

Learn about the best-kept secrets of the auto extended warranty business.