4 Questions Retirees Should Ask Before Paying for an Extended Car Warranty
Hit pause if you're thinking about buying an extended car warranty. Before jumping into this type of commitment, it's important to do your homework.
Failing to ask the right questions might cause you to overpay or purchase a product you don't actually need. The price of an extended car warranty can vary from a few hundred dollars to several thousand dollars per year, according to Kelley Blue Book.
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In some cases, it might be worth it - i.e., for certain luxury vehicles and sports cars - but it may be cheaper to simply pay out of pocket for repairs on standard vehicles.
Being uninformed can also leave you vulnerable to scams.
Auto warranty scams are common, according to the Federal Communications Commission. They typically take the form of an automated or pre-recorded phone call, often asking you to provide personal information. It can be particularly confusing, as the caller might share information about your car and warranty that cause you to believe you're dealing with a legitimate company.
MoneyLion spoke with Ray Shefska, co-founder of CarEdge, to find out what questions to ask before purchasing an extended car warranty. Keep reading to find out what you need to know before deciding on coverage.
1. Who is the underwriter of this policy?
"All vehicle service contracts are a form of insurance, so the viability of the underwriter of the policy is vital to the effectiveness of the plan," he said. "If the underwriter lacks sufficient cash reserves and faces numerous expensive claims, they may be unable to pay those claims or worse, declare bankruptcy rendering all outstanding contracts worthless, such as U.S. Fidelis did in 2010."
2. Is the policy exclusionary or inclusionary?
Exclusionary contracts are more comprehensive regarding which repairs are covered, and they also clearly detail items not covered, he said. On the other hand, inclusionary policies are more limited, only listing the covered items.
Inclusionary contracts typically cost less, as fewer repairs are covered, he said.
3. Where can I take my vehicle for covered repairs?
Do I pay out of pocket and wait for reimbursement, or does the warranty company pay the repair shop directly?
A quality extended warranty will allow you to use any licensed repair facility or ASE-certified mechanic and will pay the shop directly upon completion of repairs, he said.
Lesser quality warranties will only permit repairs at their preferred shops and will often require you to pay out of pocket and wait for reimbursement.
4. What deductible amounts am I responsible for?
"Typical deductible ranges are $0, $50, $100, $250, $500 or $1,000" he said. "Similar to your auto insurance, the higher your deductible the lower your premium."
Before signing the vehicle service contract, figure out what deductible is truly affordable to you, he said.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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