Editor’s note: Delta Auto Protect was originally a recommended provider of extended car warranties, but deeper investigation — coupled with lots of unreturned phone calls and emails — proved that it lacks necessary licensing to legally operate. This article has been updated and The Simple Dollar does not recommend purchasing an extended warranty with Delta Auto Protect.
I’m guessing you’re here looking for the best extended car warranty for one of two reasons: fear or bartering.
If it’s bartering, you’ve been doing your research: The vast majority of extended car warranties are sold when you buy a car and hagglers know the best way to negotiate any price is to have a better one in your back pocket. (If it’s quotes you’re after, start with Endurance, my top pick.)
If it’s fear, the manufacturer warranty on your favorite ride is probably about to expire, and the threat of an unexpected repair bill outweighs the fact that you might never even use your extended warranty.
That’s right: In 2014, Consumer Reports published survey results that found a full 55 percent of car owners who purchased an extended warranty never used it for repairs — and 75 percent wouldn’t buy one again. In fact, few automotive products stir up as many conflicting opinions. Even the phrase “extended car warranty” is contentious: Strictly speaking, most of the products offered under that name are actually vehicle service contracts.
So what makes these contracts worth the extra cash? For a lot of people, nothing. The Consumer Reports survey shows the median out-of-pocket savings on repairs covered by extended warranties across all brands was $837 — and the average initial cost of a policy was $1,214. That’s a loss of about $377 for all but those unicorn customers who got walloped with more massive repairs.
But if you’re someone who thinks $377 is a fine price for peace of mind, a car warranty will suit you well: The best will offer features beyond what’s available through a manufacturer’s warranty, pay for repairs after that warranty has expired, and are insured to guarantee payment, even if the provider goes under.
If your car has to go into the shop — like mine did for nine days because they had to order a new computer and remove my dashboard to replace it — the automobile manufacturer’s warranty doesn’t entitle you to a rental car. But my service contract paid for nine days of rental car service for me.
General Counsel and Executive Director
Service Contract Industry Council
The Simple Dollar’s Top Picks for Best Extended Car Warranty
I’ll admit, finding the top providers from a list of more than 40 service contract companies turned out to be a more difficult task than I anticipated (and resulted in a much shorter list than I imagined). Part of that is because the industry is incredibly entwined, with companies falling into three categories: sellers, administrators, and ones that do both. Sellers offer you a contract; administrators are the companies that actually fulfill the terms of the contract. A lot of times the same administrator will work with a bunch of sellers, including car dealerships.
I wanted to find an extended warranty provider that both sold and administered its own contracts because it cuts way down on liability issues: Who actually services your claims? How does the other get paid? What happens if one half of your two-party system goes out of business?
Some third-party sellers choose heavily regulated insurance companies to administer their contracts to help answer these questions, but I say cut out the middle man.
The crazy thing is, that decision knocked my list down to only three companies. And because I also wanted a company that was backed by an insurer (again, that pesky liability issue), I was left with one option: Endurance. Yep, there’s only one insurer-backed vehicle service contract company that both administers and sells its own product directly to consumers.
I liked Endurance for other reasons too. It has easy access to sample contracts, a quick online quote process, and coverage that is transferrable to a new owner if you sell your car. Its website is easy to use, even allowing you to log in and make a claim online instead of over the phone. Its biggest downside: not covering notoriously finicky in-vehicle technology like GPS.
Yes, it’s a short list. But if you want to do business directly with the company that will be handling your claims — rather than a third-party seller — Endurance is a solid option to get you started.
In theory, service contracts make a lot of sense.
Manufacturers across the board are slashing the coverage offered by their warranties: A typical one is only three years or 36,000 miles, whichever comes first. But according to Experian, nearly 30 percent of today’s car buyers are financing their vehicle for over 72 months — that’s six years! — and a survey by AutoMD.com shows that most people plan to keep their vehicles for at least a decade. If you plan on driving your car for the long haul, a vehicle service contract is worth considering.
But the industry is loosely regulated — and has a lingering reputation for scammy behavior.
Much of that bad rap stems from the 2010 bankruptcy of US Fidelis, one of the country’s largest providers of extended vehicle service contracts at the time. The bankruptcy was the result of a consumer fraud lawsuit, specifically regarding an “additive scam,” which let the company sell unlicensed, unauthorized, and therefore illegal insurance contracts.
The one good thing that came out of the US Fidelis scandal was a sharper regulatory focus on service contract providers. In Missouri, the state where US Fidelis originated, providers are now required to register with the Department of Insurance — something they can’t do unless they’re backed by an insurance company, or either have a net worth of $100 million (this is typically the case for auto manufacturers that offer extended warranties) or can prove that they have a sizable reserve account. Similar laws exist in more than 35 states, including Florida and New York.
Insurance-backed providers are the safest bet.
That said, $100 million is a lot of money for one company to blow through, and providers that rely on their own reserves to pay claims have to jump through a lot of hoops to prove they are financially stable. But if you buy a service contract from any uninsured company, you’re potentially taking on an added risk: If the company goes out of business, you may be left with no one to pay out your policy.
It’s the reason that Endurance ended up as my top pick: You have more peace of mind knowing that an insurer will step in to continue paying claims in accordance with your original contract, regardless of the status of the business.
Case in point, my top picks originally included three companies: Endurance, Delta Auto Protect, and Wanted Auto Protect. Delta Auto Protect ended up having really shady customer service that refused to answer my questions about its licenses, so it was eliminated from the running. And about a week ago, Wanted went out of business. I have an email out asking about what happens to existing policies. So far: radio silence.
You’ll most likely get your extended warranty from a dealership.
My top picks all offer the option for consumers to purchase their contracts directly, but it’s more likely your seller will be your car dealership. For California residents (like me) that’s my only option — it’s illegal for California providers to sell directly to consumers. This absolutely limits your options: Your car dealer will only offer coverage from the contract provider it has a relationship with. (Maryland has a law similar to California’s — you’re not allowed to buy a service contract from a third-party seller — but you can buy directly from a company that administers its own contracts, meaning that my top picks are fair game for Maryland residents.)
Direct-to-consumer service contracts and dealer offerings have some crossover — for instance, Endurance sells its service contracts both directly to consumers and through dealerships — but, for the most part, these providers operate independently of one another.
So, what’s the difference?
If you get one from a car dealership, it happens while you’re buying the car.
Once you’ve picked your vehicle from the lot, you’ll be escorted to the “F&I” office — shorthand for finance and insurance — where the finance manager will offer you products like paint protection, dent and ding coverage, and, yes, a vehicle service contract.
I was the editor of an industry magazine for finance managers for several years, so I’m very familiar with the ins and outs of buying ancillary products from dealers. Some things you should keep in mind:
The finance manager can roll the cost of the service contract right into your car loan.
You’ll be paying an interest rate on that loan that is set by the dealer — part of which the dealer will get to keep, as compensation for arranging the financing. This isn’t necessarily a bad thing according to Tim Meenan, general counsel and executive director for the Service Contract Industry Council. “When the payment for a service contract is folded into the car price, it’s fairly small each month,” he explains. “In comparison, depending on the payment plan you have with a direct-to-consumer company, your monthly cost for the service contract could be higher.”
The dealer also has the discretion to set the price of the vehicle service contract.
For instance, in order to close the deal, the finance manager might discount the product. You’re well within your rights to work with the finance manager to obtain a lower sale price for the coverage — like I mentioned, having a quote from a company like Endurance can give you some leverage. Edmunds also recommends calling other dealerships and asking for their quotes on the same kind of warranty. It pays (and saves) to shop around.
Make sure you check your paperwork for the final sale price.
Your monthly payment might sound good, but the grand total could surprise you. “The biggest mistake a consumer can make is to start to negotiate the price of the car based on what they can afford for monthly payments,” explains James Bell, an industry consultant formerly of General Motors and Kelley Blue Book. “If you tell the dealer, ‘I can afford $399 per month,’ they’ll tell you they can meet that number — if you put an extra $1,000 down, or if you extend the terms of the loan. You always want to look at that final up-front price.”
Getting a direct-to-consumer contract is more appealing if you already have a car.
Say you get a sweet ride off Craigslist. Or maybe your manufacturer’s warranty is about to expire. You could go back to a car dealership for a service contract — but it will cost you extra. I talked to Paul Chernawsky, the CEO of our top pick, Endurance. His company sells contracts both through dealerships and directly to consumers, and he explained: “If I came back to the dealer and said, ‘Look, I want to protect my car because my warranty is expiring,’ the dealer would have to do an inspection on the vehicle. That’s costly — and that cost is passed on to the consumer.”
Purchasing a vehicle service contract aftermarket directly means you won’t have to get your car inspected or pay a hefty fee. (That said, you’ll usually have to wait 30 days — and 1,000 miles — for your coverage to begin. Why? If your car fails in that time, there was probably a pre-existing condition that the contract administrator doesn’t want to be held responsible for.)
Another pro: You likely won’t pay interest. Direct-to-consumer providers typically offer payment plans — not loans — meaning you won’t pay more than the cost of the service contract, even if you want to pay it off over a year or two.
Only 3 percent of Endurance customers pay up front. The other 97 percent make monthly payments. We take the first 5 to 10 percent down on the purchase, and then for the remainder, we set the consumer up in a no-fee payment plan over 12, 18, or 24 months. So now the consumer is not paying interest, and doesn’t have to qualify for a loan.
CEO and President
So, what does an extended warranty cost?
It’s the million-dollar (okay, more like thousand-dollar) question. Consumer Reports cites the average warranty at $1,214, but I asked eight providers to give me a ballpark number, and not one of them complied. And there’s a reason for that: The cost of a service contract is completely dependent on the company and the car it’s covering. A service contract for a new Mercedes-Benz S-Class is going to cost you a lot more money than one for a used Toyota Camry — and every service contract provider will have different prices.
But there’s an added layer to service contract pricing, especially if you’re buying through a dealer. Like I mentioned, the finance manager at a dealership will often discount the price of the service contract to sweeten the car deal (or, in some cases, they may inflate it if they think you’ll buy it at a higher price). That means every customer who buys a service contract from that dealership could be paying a completely different price for the exact same coverage! Hagglers, come prepared.
You can get your money back if you change your mind in the first 30 days.
And after that, you’ll typically be refunded a prorated amount based on time and mileage. It’s a nice safety net to keep in mind.
Endurance is a great place to start if you’re in the market for an extended warranty, but if you want to shop around, the experts I spoke with had a few quick and dirty tips for eliminating shady companies right off the bat.
Check if the provider is licensed.
Before you sign any dotted lines, visit your state’s Department of Insurance website to do a quick search for the company. If your state doesn’t have such a licensing requirement, it’s likely the company is also doing business in a state that does — meaning you can check elsewhere. This is where Delta Auto Protect failed: There was no sign of it on any insurance websites, and when I called to ask if it was licensed, the company bounced me to different customer service agents, offices, and voice mails, unable to give me a simple yes or no.
If the company says they’re nationwide and you can’t find their name on any of those insurance commissioner websites, you’re probably dealing with a false prophet, not a real company.
General Counsel and Executive Director
Service Contract Industry Council
Request a copy of the full terms and conditions.
Any provider worth your money will give you the full contract for review as soon as you ask for it. While the sample contracts you can find on many providers’ websites are handy for getting an idea of what the terms and conditions might look like, they are no substitute for the real deal.
There are many documented cases of service contract scams (so many, in fact, that the Federal Trade Commission issued guidance for consumers just on this topic). Many of these scammers will call you or send you mailers claiming to be a legitimate company that is reaching out to you because your manufacturer’s warranty is about to expire. You can quickly separate the legitimate providers from the fraudsters by asking them to email you the full contract. If they won’t do it, don’t buy.
Choose the right coverage for your vehicle.
Once you’ve determined that the company you’re planning to buy from is legitimate, you need to dig into its offerings to find out if they fit your needs. Those needs will be different depending on whether you’re covering a new or used car, if you’re interested in just bare-bones coverage, or if you’re looking for something that offers extra benefits, like roadside assistance or coverage for your Bluetooth system.
Most providers offer several levels of coverage so you can select a contract that works for you — if it makes your decision any easier, Consumer Reports suggests to “go all in.” (Its survey found the difference in price was small enough that springing for a beefier product for nice extras like rental car coverage was worth it). If you’re not sure what you need, here are a few things to keep in mind:
- Manufacturer drivetrain/powertrain warranties last for a long time.
Although General Motors has rolled back powertrain coverage in the past year from 100,000 to 60,000 miles, that’s still a good chunk of coverage (and similar to what other manufacturers are offering). For that reason, basic powertrain coverage is only probably something you should buy if you have a higher-mileage used vehicle — or drive a lot.
- In-car technology causes the most problems.
One downside to Endurance is that it doesn’t cover GPS, internet, Bluetooth, or other high-tech items. That’s pretty important — these systems were the number one problem area for vehicles in 2016, according to J.D. Power. If you have one, you might want to consider this type of coverage.
- You could invalidate your coverage if you don’t maintain your car.
It’s important to check what you have to do to uphold your part of the service contract. No service contract is going to let you drive your car into the ground, and then swoop in and cover all the repairs. Both my top picks stipulate that “you must properly maintain your vehicle by performing maintenance services, at the proper intervals, according to the requirements of your owner’s manual or as otherwise specified by the manufacturer.” Miss an oil change? Busted.
- Exemptions are make-or-break.
The phrase “bumper-to-bumper” gets thrown around a lot, but there are always exemptions — and sometimes lots of them. Some things your warranty should definitely cover: your engine, transmission, and drive axle (plus anything you know is going to be finicky). Jump right to the exemptions section of your contract when you get it and take note. It’s not unusual for a service contract to exclude repairs you haven’t reported in a specified amount of time, fees for ordering special parts, any repairs that are the result of a collision, or damage to aftermarket parts you’ve added to your car.
- Your mechanic might not be “covered.”
Service contracts have in-network mechanics, a lot like health insurance has in-network doctors. If you have a go-to mechanic, confirm that they’ll be able (and willing) to work with the claims department of your service contract provider.
Extended warranties aren’t essential to car ownership — and chances are you won’t use it if you get one. But if you prefer peace of mind over the possibility of an unexpected repair bill, Endurance is a good place to start.