Is An Extended Vehicle Warranty A Wise Decision?

In addition to increased warranty protection, many vehicle manufacturers provide new-vehicle buyers with 24-hour roadside assistance for the length of a vehicle’s factory warranty. Meanwhile, continuing improvements and advances in both build quality and materials technologies are making today’s vehicles more reliable than ever.

The question is: Are extended warranties (also known as vehicle protection plans, maintenance agreements, extended service agreements, service extensions and mechanical breakdown insurance) a good deal?


The first part of the decision-making process is to determine if extended warranty coverage is needed. Examine the factory warranty (also called a bumper-to-bumper warranty) to determine the length of the warranty period and what repairs are covered. Typically, the longer the term of the warranty, the more limited the warranty is.

Also, look to see what maintenance items and repairs are not covered and what covered repairs may have a cost to them.

If you plan on keeping the vehicle for less than the contract’s coverage period, say three years/36,000 miles, then an extended warranty would not be a wise choice as any repairs would likely be covered under the vehicle manufacturer’s plan.

But if the vehicle will be kept for longer, or the mileage limit will be exceeded, an investment in an extended service plan would offer a “security blanket” to avoid a large repair bill in the future.

Extended warranty plans may be purchased at any time, even after the vehicle’s original warranty has expired. However, this will be more expensive than purchasing an extended plan while the vehicle is still in its warranty period.


If an extended warranty does make sense, the next step is to select the best coverage. There are a seemingly endless number of different plans being offered and they vary significantly in the terms and the kinds of services that are covered. Consequently, it is essential to read the contract carefully for the terms and conditions. Among the things to check for:

  • What is and what is not covered?
  • How many years and miles is the coverage for?
  • Is “wear and tear” covered? If not, the plan does not offer true bumper-to-bumper coverage.
  • Are there any deductibles or limits on the coverage? If there are deductibles, is it per visit or per repair?
  • What is the method of payment? Some plans require payment to the shop directly and the need to file for reimbursement. Other plans pay for repairs directly, while some require a co-pay.
  • Where can the repairs be performed? Is there the ability to choose between the dealership where the vehicle was purchased, manufacturer authorized dealerships or independent repair shops? Many independent extended warranties allow a vehicle to be repaired at any licensed repair facility.
  • Does the plan specify whether replacement parts may be either new or remanufactured, or is the choice of those parts at the discretion of the provider?
  • Is the warranty transferable?

Many extended warranties also include additional benefits, such as towing, road service and rental cars.


OEMs, vehicle dealers and independent (third-party or aftermarket) companies offer warranty contracts that extend coverage for a longer period of time.

Just as important as choosing the most appropriate extended warranty is selecting an organization to buy that warranty from. It is best to deal with a reliable and reputable company.

Take care to weigh the cost of the plan against the quality and service of the company that backs it. Companies should offer a strong retail history, adequate financial reserves and be highly rated by such organizations as the Better Business Bureau and financial, insurance and credit services companies like Standard and Poors, Duffs and Phelps, and A.M. Best.

Because the matter of extended warranties can be confusing, take the time and effort to investigate thoroughly before making a purchasing decision. It is always a good idea to talk with companies that offer these plans, as well as with companies that you know use extended warranties. Don’t be afraid to ask questions.

Keep in mind that old adage: An informed buyer is a good buyer.