after-market extended auto warranty

Robert_Z · 01-29-2008, 08:37 PM

I need to buy one within the next few months. Who do you recommend to provide reliable service when needed, for a reasonable price?

Thanks.

Eric Peterson · 01-30-2008, 08:39 AM

Why do you feel that you need one?

In my experiences, these warranties are virtually useless unless you have a catastrophic failure such as a transmission or a cracked block. For anything else, there is always a large chunk of the repair that's not covered if it's covered at all. In my opinion, you're better off throwing a $50-$100 a month in a special account for car repairs.

Robert_Z · 01-30-2008, 10:16 PM

Quote:

Originally Posted by Eric Peterson

Why do you feel that you need one?

In my experiences, these warranties are virtually useless unless you have a catastrophic failure such as a transmission or a cracked block.

Peace of mind, and coverage in case I have a catastrophic failure like you mentioned. Plus, I bought a used vehicle, so you can never be too careful.

Henry Gale · 02-03-2008, 06:59 AM

Quote:

Originally Posted by Robert_Z

I need to buy one within the next few months.

Robert,
All of the experts say extented warranties are a bad idea.
You think you may use it. The people selling the warranty think you won't.
Why do you think they're making money?

Robert_Z · 02-03-2008, 12:21 PM

Quote:

Originally Posted by Henry Gale

Robert,
All of the experts say extented warranties are a bad idea.
You think you may use it. The people selling the warranty think you won't.
Why do you think they're making money?

Henry, that is news to me. I thought extended warranties were a no-brainer?

Well, I learn something new every day. This is actually good news because I was not looking forward to paying $1000-1500 on a warranty.

**HTF Ads**

Malcolm R · 02-03-2008, 12:43 PM

I agree. Extended warranties are generally a waste of money.

As noted, you'd be better off putting $1000 into your savings account every year instead of buying some piece of paper that you might never need, and might not be able to collect on even if you did.

Steve Schaffer · 02-03-2008, 03:50 PM

"extended warranties" like any other kind of insurance are a gamble and stacked in favor of the house else they would not exist.

For fairly affluent people who have the ready cash to painlessly pay an unexpected $2500-4000 repair bill for a major drivetrain failure or even the $1200 or more it can cost to repair an AC system or power seat they don't make sense.

For less affluent people (those without thousands in spare money sitting in the bank) financing an extended warranty along with a car gives them a fixed manageable monthly cost and a sense of security. For these folks an engine or transmission repair they can't afford would eliminate the family's main means of transportation. Such extended warranties are also usually transferable to subsequent owners and may add to the vehicle's resale value.

So while extended warranties are not for everyone they can be of great benefit for many others.

Brian Perry · 02-03-2008, 10:45 PM

As others have already mentioned, the company selling the warranty wouldn't be in business if, on average, they paid out more than they collected from you. However, one thing I think people overlook is that some percentage of the premium you pay for the warranty represents the amount the warranty seller expects to pay over the term of the warranty. It is this number that interests me.

For example, I could buy an extended warranty for my S500 for around $3800 for an extra three years and 60,000 miles (taking it to 110,000 miles). Of course, the extended warranty is not nearly as inclusive as the original factory warranty. But there must be an actuarial table somewhere that estimates the expected amount of covered repairs. I would think that for my car, a potential money pit, the expected payout by the warranty seller would be at least $1000. Therefore, my "true" cost for the warranty would be $2800, which is the difference between the projected claims amount and the warranty cost.

Perhaps that $1000 estimate is way off. If it's much higher than $1000, the warranty doesn't seem so bad; if it's closer to $0, it would probably be best to pass. I'd be interested in hearing from someone in the insurance business who can speak to what profit margin is normally built in to these warranties.

Henry Gale · 02-03-2008, 11:22 PM

Quote:

Originally Posted by Brian Perry

I'd be interested in hearing from someone in the insurance business who can speak to what profit margin is normally built in to these warranties.

Plenty.
I'm sure I'm not the only one who has had the experience at a car closing of being offered an extended warranty at X amount and upon saying, "NO" having it offered again at half the price.

Robert_Z · 02-03-2008, 11:31 PM

Quote:

Originally Posted by Henry Gale

Plenty.
I'm sure I'm not the only one who has had the experience at a car closing of being offered an extended warranty at X amount and upon saying, "NO" having it offered again at half the price.

I had a similar experience. I negotiated a several-hundred-dollar price drop and an upgrade to the highest level of coverage by simply shrugging my shoulders. It was funny, really.

If the dealer was so willing to drop the price that quickly, I wondered what the heck I would have been buying anyway.