Should I Buy an Extended Warranty?

I am often asked about whether or not it is a good idea to buy an Extended Warranty when purchasing a vehicle. Of course there are a number of variables to consider.

If you have a reasonable financial cushion an extended warranty is probably not a good investment. Consider that the warranty company knows exactly what their average claims cost is for a particular model. They need to make a profit above their expected cost. From a statistical standpoint you are likely to spend less repairing your vehicle than the cost of the warranty.

The biggest advantage of a warranty is that someone else is saving for the inevitable repair. You can have a fixed monthly budget to cover repairs. You have to remember that the warranty is not covering “wear items”. Wear items are tires, brake pads, brake rotors, spark plugs, belts and hoses. You must also keep records of completing your scheduled maintenance.

The good news about extended warranty companies is that anyone still in the business is probably a reputable insurer. We deal with extended warranty companies very frequently. They always honor exactly what the contract covers. They even give the customer the “benefit of the doubt” on questionable items. But they never cover anything excluded in the contract.

The only claims that we have seen denied are for seized engines when there is no proof of oil changes. The only data available supports that the oil was changed at intervals greater than 10,000 miles several times. The physical evidence indicated that the cause of failure was a lack of oil changes.

The next question is how much does the warranty cost. I went to the internet to look at some typical extended warranty costs. I looked at eight different vehicles; all were 2003 models with 60,000 miles. Coverage was three years or 100,000 original miles. The lowest cost on an extended warranty goes to Japanese sedans, where a full coverage warranty costs $1,634. I doubt a Toyota Camry owner would spend that on repairs before 100,000 miles. The highest cost warranties go to SUV’s. To my surprise there was no difference in cost between a Toyota Sequoia and Ford Expedition, either warranty was $2,514. To keep these costs in perspective, the extended warranty cost ranged from 11% to 34% of the retail value of the vehicle.

Three important factors to consider are the duration of the warranty for, the deductible (like a co-pay), and the extent of systems covered. One year warranty costs were 63% of the three year cost. I recommended going for the longest term if you are going to get an extended warranty. Remember that you are dealing with statistical probabilities. The odds of repairs exceeding the warranty cost in the first year are very slim.

I would recommend going with a higher deductible. The $0 deductible plan cost $325 more for every vehicle than did the $100 deductible plan. Do you think you will have four covered repairs during the contract?

On coverage level I would recommend going with the fullest level of coverage. If you are going to spend money on a warranty you should get the greatest level of coverage. Systems only covered in the full plans, such as the ABS braking system or the electronic A/C controller, are expensive to repair. The more basic plans I saw cost 90% of the full comprehensive plans.

We see happy people when a needed repair is covered. We see very disappointed people when they have paid for a warranty, but the needed repair is not covered.

Brian Klaubert has written for the Neighborhood News for five years, and owns Christian Brothers Automotive – Hamilton Mill on Braselton Hwy in Dacula. They have been voted Best of Gwinnett in both the Gwinnett Daily Post and Gwinnett Magazine.