Car Buying Secrets

Extended Service Contracts - Life Insurance for Your Car

By: Roosevelt Gist

Extended service contracts have always been a topic of much concern. Whether they’re covering cars or appliances. I see it as "medical insurance" for your car. No one likes it until a problem occurs. Extended service contracts get so much bad press because dealers have over priced them with huge markups and so many companies have gone out of business without paying claims.

Your main concern before buying an extended service contract should be the financial stability of the company behind the agreement. There will be millions of dollars in claims usually in the 3rd and 4th years. You don’t want to be left paying for the repairs because the company has gone out of business. That happens because the company took the up front profits and placed nothing in reserves for future claims.

Extended service contracts are sold based on the make, length of agreement and mileage, i.e., 6 years or 100,000 miles. This means you’re covered for 6 years or 100,000 miles whichever comes first. Know how many miles you drive. The cost difference between makes is based on the previous repair history of that vehicle.

Automobiles are better built, have better manufacturer’s warranties but, are still subject to mechanical breakdown. Repair labor rates have gone through the roof. Parts prices are rising. Would you rather pay a $400 or $900 repair bill or just the $50 deductible and a company pays the balance. That’s your real choice.

Thoroughly review the terms, conditions, components covered and length of the agreement. Know if you have to pay before the repairs are made. If you get reimbursed, when. You will need to keep all maintenance records, such as oil changes. Find out the cost to renew your existing coverage. Remember your car will be a used car with higher rates. Keep your agreement in your car at all times. It could be a long time before you need it and that way you will have it available at all times.

Dealers sell extended service contracts from $495 on up. The more expensive cars will be priced higher. To get your best price shop the cost. Call your insurance company because many now sell this coverage. Banks and credit unions also sell extended service contracts. They will call it "mechanical breakdown coverage insurance."

Is it worth having? Ask someone that’s used it. For the money it’s good to have. If you lease, get it.

Questions to ask the salesperson: What company backs this agreement? What components are not covered? How do I report a claim? What repair facilities will honor this agreement? Do I have to pay first and then get reimbursed?