Auto warranties come in many sizes and flavors. Knowing the right warranty for your particular vehicle, situation, and driving habits can save you time, aggravation, and most importantly money.
The different types of warranties are manufacturers' warranties, extended warranties, vehicle service contracts, mechanical breakdown insurance, and product warranties. Each has their own benefits and limitations and each are governed by specific laws and regulations.
Manufacturers' warranties are issued by the original vehicle manufacturer and cover specific components for a set number of months or a set number of miles, whichever comes first. Manufacturers are required by law to cover factory installed parts for defects in materials or workmanship.
In the United States all new vehicles come with a Basic warranty and some vehicles also include a Limited Powertrain or Drivetrain warranty once the basic warranty expires.
The Basic warranty (a.k.a. bumper to bumper warranty) covers most components except standard maintenance and consumable items, which are subject to wear out in the normal course of driving. This includes parts such as brake pads, filters, belts, hoses, and wiper blades. Some companies, like BMW for example, will include a maintenance plan with the Basic warranty to cover some of the standard maintenance items. This is not a warranty but a maintenance plan.
The Limited Powertrain warranty starts when the Basic warranty expires and generally only covers the engine, transmission, axles and driveshaft. If your engine or transmission stops running, you may think the Limited Powertrain will cover it. However, this warranty only covers the parts inside the engine or transmission. It does not cover the major causes of an engine or transmission running poorly or stop running altogether, which are components such as the fuel system, electrical issues, modules or sensors.
Your vehicle will also come with a Rust or Corrosion warranty. Additionally, Federal law requires some emissions equipment to be covered for 8 years or 80,000 miles, and passive restraint systems for 5 years or 50,000 miles.
Manufacturers' Basic warranty, depending on the vehicle make and model will typically cover from 36 months or 36,000 miles up to 60 months or 60,000 miles. Limited Powertrain warranties can run from 60 months or 60,000 miles up to 120 months 100,000 miles. See your owner’s manual, dealer, or check the manufacturer’s website for specific details about your particular vehicle.
Extended Warranties, Vehicle Service Contracts, and Mechanical Breakdown Insurance
Extended warranties, vehicle service contracts, and mechanical breakdown insurance are basically the same and we will refer to them all as extended warranties.
An extended auto warranty is actually a contract between you and the warranty provider that says if a part or component described on the policy breaks, or wears out in some cases, they will pay to fix it provided you have properly maintained your car.
Extended warranties can also include additional benefits such as free 24/7 roadside assistance for emergencies such as lock-outs, fuel delivery, battery jump, flat tire repair, and towing. Many also come with car rental reimbursement and travel interruption protection in case of a breakdown.
Warranty companies are governed by Federal and State laws and regulations and these vary from state to state. Extended warranties, vehicle service contracts and mechanical breakdown insurance are regulated by your state’s department of insurance. Some states are more aggressive in their regulations than others. Florida for example, is the only state where the retail price of a warranty must be registered with the department of insurance and the warranty cannot be sold for any more or any less than the registered retail price.
Warranty companies are not always required to be insured. The best companies will be direct insured. Direct insured means the warranty policy is backed by an independent third party insurance company that guarantees the obligations of the warranty company.
The insider’s tip here is only buy a warranty from a company that is direct insured by an A.M. Best A rated insurance company. A.M Best & Company is an independent insurance analysis and rating company. They have been around for over 100 years and are the gold standard in rating insurance companies worldwide. Never buy a warranty that is uninsured.
Parts you purchase for your car will usually come with a warranty. This is known as a product warranty. Product warranties may not be sold for a separate price and must be offered free of charge. However, there are some companies selling product warranties disguised as extended auto warranties. Typically they will send you a can of oil or maybe something you must put in your gas tank. Because it’s a product, they can bypass all state insurance regulations. Never buy an extended warranty that requires you to use a product.
The One Insiders Tip to Remember
The most important thing to remember about any auto warranty, and this includes the original factory warranty, is you must perform the routine maintenance as listed in your manufacturer’s recommended guidelines. If your manufacturer recommends changing the oil every 5,000 miles and you don’t change it for 15,000 miles, not only are you asking for trouble but you will void your warranty.
Additional Reading: Types of Extended Auto Warranties