The Do's and Don'ts of Buying a Warranty

Many consumers choose to purchase Vehicle Service Contracts, commonly referred to as “extended warranties,” to protect against unexpected vehicle repair costs, to provide other benefits like roadside assistance or towing, or to make their car worth more at trade-in or sale time. While there are many credible providers of extended warranties, there are also unscrupulous marketers who use deceptive practices and misleading language to convince you to buy an inferior contract that will not provide coverage when you need a repair.

The following is a brief list of criteria to help you through your purchasing process so that you wind up with the quality coverage you deserve.

Don’t Buy a Contract You Can’t Review First

Reputable companies will send you a copy of your actual contract, either via E Mail or regular mail, for your review before you purchase.

When you review the contract, look for the following:

1. Immediate Coverage: Some companies impose a waiting period for your coverage to begin, so they have your payment for one to several months before you have the right to use your coverage!
2. Reasonable Coverage Limits: Look for any limits to the number of claims, dollar per claim, or maximum amount of claims that the contract will cover. Is that limit reasonable, i.e., up to the total value of the vehicle? Some scam contracts impose limits that are hardly more than the cost of the contract itself!
3. The Name of the Insurer: Every contract has an insurer that is ultimately responsible to assure that all covered claims are paid. You want to be confident that your insurer has the financial strength and stability to be there to pay what you deserve. Take a moment to check their rating at www.ambest.com. It should be “A” or better and a MINIMUM of $100 Million in assets.
4. Clearly Marked Coverage: A common trick by scammers is to use a contract with several different levels of coverage available. Do not accept verbal promises about which coverage you will receive. If more than one level of coverage is shown on your contract, you’ll want to make sure that the coverage you are paying for is CLEARLY noted in writing.
5. Reasonable Wear and Tear Coverage: While no plan covers “consumable” items, such as normal tire wear, parts that experience early failure due to wear and tear should be covered by your policy. Manufacturers have determined the operating range or tolerance within which a part should function. When a part fails to perform due to being outside those factory specifications or tolerances, the part should be considered as failed, period.
6. One Deductible per Visit: Mechanical failures generally involve multiple parts, and it’s not uncommon to need more than one type of repair in a single visit. Make sure that your contract stipulates that you will be charged only one deductible per visit, regardless of number of parts or repairs needed. Some of the better companies even allow that one deductible to cover any previously repaired components for the life of the contract.
7. Cancellation Provisions: Most States have very specific cancellations provisions. Carefully read the provision on the contract you are considering. You will only want to purchase a contract that allows for a full refund for a minimum of 30 days, and pro-rata refund of unused months/mileage for the life of your contract. Some companies deduct claims paid on your behalf from the cancellation refund amount – you should insist on doing business with a company that does not do this. Most State laws require a full refund of the unused (by time and mileage) portion of your contract at any time during the contract, regardless of claims amounts.

Don’t Buy from a Company That Uses the Term “Bumper to Bumper”

Remember: “If it sounds too good to be true, it probably is.” The term “bumper to bumper” is inherently misleading, as repair contracts don’t cover consumable items such as windshield wipers or normal tire wear … or bumpers, for that matter. They’re specifically intended to cover mechanical breakdown and the costs associated with repairing the vehicle. If a company uses the term “bumper to bumper,” they are being deliberately misleading, and who knows what else they will mislead you about?

Also, any company offering to cover your vehicle that already has 150,000 – 250,000 miles on it is probably offering something that will not cover very much, if anything.

Don’t Submit to High-Pressure Sales Tactics

Credible companies do not threaten or badger you to buy their product. While they are certainly interested in your purchase, they will be respectful and professional throughout the sales process. If you feel uncomfortable with the sales pressure, that is a sign to go elsewhere. There are plenty of reputable firms who would be happy to treat you the way you’d like to be treated.

Don’t Buy Product Warranties

Many companies are actually not offering Vehicle Service Contracts. They are offering products like oil additives and other chemicals you are required to put in your engine to get the warranty. Most of these products can be purchased at any auto parts store for a few dollars, but these companies are selling them as “warranties” for $1700 and even more! Simply stated: Don’t Buy Them.

Do Insist on a High Better Business Bureau Rating

Unlike web recommendations and other phony “consumer review” sites that may look legitimate but are really just companies recommending themselves, the Better Business Bureau can be trusted to consistently maintain neutrality and fairness in dealings with businesses and customers. Their ratings cannot be bought; they must be earned. If the company you are considering has no ranking or a low ranking, do not do business with them.

Do Insist on a Company That Pays the Repair Facility Directly

Some contracts require that you pay the repair facility and then submit your claim to the company for reimbursement. At best, this can create cash flow challenges for your family; at worst, this puts you in the position of fighting for money you are owed. Reputable companies are happy to pay the repair facility directly with credit card or check payments. Check with the service director of a franchised dealer or repair facility you trust and make sure they are willing to work with the contract you are considering purchasing before you buy.

Do Look for Signs of Longevity and Stability

• How long have they been around?

Don’t do business with a fly-by-night company. Look for a company that’s been around for 10 years or more as the same company, with the same name. Many of the unscrupulous companies are constantly marketing themselves under different names, changing addresses and phone numbers, etc., each time they run into complaints from customers.

• How easily can you find them?

Purchase your service contract from a reputable dealership so you know you can find them if you need them, or if you choose to shop online or purchase from a mail solicitation, be sure you are buying DIRECTLY from the actual administrator of the contract. Direct Marketing companies who represent dozens of little or unknown administrators and insurers are where most of the problems originate.

Quality companies make themselves easy to find, while scammers generally hide their address and phone number. If you’re web-savvy, Google the address of the company in order to be sure that is their actual address. Also, spend a little time researching the company’s own website to learn as much as you can about them.

• Do be honest with the Warranty Company

It’s important to buy from an honest company, and it’s important to be honest with them when you are considering purchasing coverage. Just as with health coverage, pre-existing conditions will not be covered by the new policy. To ensure that your vehicle is in good working order, reputable companies will require that your vehicle either have remaining warranty coverage (factory or extended), or pass an inspection by a qualified mechanic. The time to shop for coverage is when your vehicle is in good working condition, not when you have an existing repair need.

What to do if You’ve Already Bought a Bad Warranty

If you’ve reviewed your warranty and you think that it might be a scam, there are still things you can do. If you’ve had the contract for less than 30 days, most State Laws require that you can cancel for a full refund. Some States require a full refund for 60 Days. After that, you should be eligible for a pro-rata refund of the unused time and mileage on the contract.

If you have trouble locating or contacting the company to get a refund, contact your state Attorney General, state Department of Insurance, or Better Business Bureau immediately for assistance.