Extended warranties.
A misnomer.
Coverage beyond the factory warranty is called an extended vehicle service contract or mechanical maintenance policy-an insurance policy offered by carmakers and insurance companies in case the mechanical or electrical systems on your car fail after the factory warranty period has expired.
“Customers who buy service contracts typically drive a lot of miles,” said Dana Hart at General Motors Acceptance Corp., which offers the General Motors Protection Plan extended service contract. “They may be on a budget and would rather pay a little each month to avoid a large repair bill for unexpected repairs.
“Some people may expect to keep the car a significant amount of time beyond the warranty period and want to be covered. It may be a budget issue or they just want the security. Also, some people could have a certain risk aversion attitude which prompts them to buy our policies.”
“The high cost of repairs is mindboggling,” added Rob Mancuso at Western Diversified Services, a Deerfield-based diversified insurance specialist that offers the contracts as aftermarket policies. “Extended service contracts may cover the cost of repair.”
Carmakers entered the extended service agreement market about 20 years ago, hoping their companies’ reputations would make the policies more attractive than the aftermarket ones, which had been hurt by fly-by-night operations.
“Companies which underwrite vehicle service contracts have improved over the last four years,” said Matt Harvey of the Illinois attorney general’s office. “This is due to the fact that vehicle manufacturers now underwrite some policies.”
Still perhaps 1 percent of the auto complaints received by the attorney general are related to the service contracts, Harvey said.
“Many consumers don’t understand the service policy,” he said. “Often there are mileage limitations, 30-day grace periods, limitations on pre-existing vehicle conditions or limits on the repairs that consumers fail to understand when they purchase the policy.”
Prices of the contracts on new and used vehicles vary. The more sophisticated the vehicle, the more expensive the contract, Duane Angevine, assistant finance and insurance manager at Heritage Buick in Peoria Motors said of GM’s Protection Plan.
Prices range from $400 to $900, depending on vehicle and coverage terms, meaning higher deductibles or lower coverage costs, for example, he said.
Factory and aftermarket policies are similar in that when your car breaks you usually have to take the vehicle to a dealership or authorized repair facility spelled out in the policy.
Mark Busse, owner of Busse Automotive in Mt. Prospect, has been accepting these policies for years with little problem after the cumbersome authorization process. He first has to get an OK to diagnose the car and then a second one to do the repairs.
“Sometimes waiting for authorization from the insurance company is challenging,” Busse said, who added he’s rarely denied the go-ahead but it can take a couple of days to get it.
Like a factory warranty, extended service contracts vary.
Generally, carmakers and insurers offer several types of policy. For example, Chrysler Corp. has contracts good for five years/50,000 miles or seven years/70,000 miles. According to Toyota spokeswoman Mona Richard, Toyota offers coverage up to seven years or 100,000 miles on new and leased vehicles. And Western Diversified provides coverage for up to seven years or 100,000 miles.
Ford Motor Co. policies range from PowertrainCare, which covers 29 major components to PremiumCare, which according to a company spokesman, covers just about everything on the car. GM offers three levels of service ranging from powertrain coverage to full mechanical and electrical breakdown.
Though deductible charges of $50 to $100 are common with extended service policies, rental car costs and towing expenditures can be covered.
New-car extended service policies generally are transferrable to subsequent owners for a fee.
According to Brian Larsen, business manager at Highland Park Lincoln-Mercury, a new-car owner can opt for an extended warranty up to 18 months or 18,000 miles after purchase.
“We also offer packages from GE Capital,” he said. “They are mostly for used cars not of Ford origin.”
Western Diversified offers its policy for up to 10 months or 12,000 miles after the purchase.
“The salesperson offered to sell me an extended service contract backed by GMAC,” said Carol Masulunes, who recently purchased a new Pontiac Grand Am. “I didn’t purchase the policy because it was expensive and I didn’t feel it was necessary.”
Since then, however, Masulunes reported that she has received several offers by mail for service contracts.
“I was surprised when Ford Motor Co. offered to sell me a vehicle service extended warranty on my GM car by mail. Now I’m thinking about purchasing a policy because I’ve had so many offers and I have time to think about it,” she said.
The attorney general’s office offers these tips before buying an extended service contract:
– Read the policy carefully.
– Determine whether the vehicle, especially if it’s used, has a problem that isn’t covered by the contract.
– Check the length of coverage in terms of mileage and time.
– Check who is authorized to do repairs. It may be only the dealership that sold the contract or an independent repair shop may be able to do the work.
– Check coverage for rental-car use while the vehicle is being repaired.
– Find out what repairs and parts are covered.
– Find out all limitations or exclusions.
