Should You Buy an Aftermarket Extended Car Warranty?

Why Many Aftermarket Warranties Get Denied

Quick Summary

An aftermarket (non-dealer) extended car warranty, one you buy online, rarely makes sense for most drivers. These warranties often exclude the components most likely to fail, and the fine-print definitions limit coverage to manufacturer defects, excluding wear and tear. Worse yet, they have an incredibly high claim rejection rate. In other words, they use loopholes to reject claims. In my experience, many drivers overpay for coverage they’ll never use, while others deny themselves protection that could have saved thousands. The key is knowing when an aftermarket warranty works—and when it doesn’t.

If you’re considering a used-car extended warranty, it’s a different product, and you should read this article instead.

Article

Aftermarket Extended Car Warranty Explained by an Auto Repair Expert

An after-market extended car warranty is not really a warranty at all. It’s a vehicle service contract sold by a third-party company, not the automaker. Unlike factory warranties that come with the car, these contracts are optional, negotiable, and wildly different in quality.

Some of these service contracts are excellent and pay claims quickly. Zurich is a brand that pays claims promptly and rarely denies them. Others fight every repair, deny coverage on technicalities, or disappear entirely. That’s why understanding how an after-market extended car warranty actually works is critical before you buy one.

Should You Buy an Aftermarket Extended Car Warranty?

Whether you should buy an after-market extended car warranty depends on three factors: the vehicle, how long you plan to keep it, and your tolerance for repair risk.

If you’re buying a late-model vehicle with a strong reliability history and plan to trade it in within a few years, an aftermarket warranty usually isn’t worth it. On the other hand, if you’re keeping a vehicle long-term—especially one with expensive electronics, turbochargers, or air suspension—coverage can make financial sense.

The mistake I see most often is people buying coverage out of fear rather than based on the numbers. A smart decision weighs the cost of the after-market extended car warranty against the likely repair costs, not the worst-case scenario.

Do Aftermarket Extended Car Warranties Actually Pay for Repairs?

Yes—some absolutely do. I’ve seen aftermarket warranties pay for engine replacements, transmissions, infotainment modules, and high-dollar electrical repairs. But I’ve also seen claims denied for reasons customers never understood.

Here’s the truth: an after-market extended car warranty only pays for what is specifically listed as covered. If it’s not written in the contract, it’s not covered—no matter what the salesperson said. Wear items, diagnostic time, and pre-existing conditions are standard exclusions.

Good warranty companies authorize repairs quickly, pay shops directly, and use reasonable labor rates. Bad ones delay approvals, demand tear-downs at the customer’s expense, or deny claims using vague language. That’s why provider reputation matters just as much as coverage.

Factory car extended warranties are very good

A factory warranty is available only from a genuine factory dealer and can be purchased only during the carmaker’s bumper-to-bumper warranty period. But don’t think that means you have to buy it from your SELLING dealer. If you buy a GM vehicle, for example, you can buy a genuine GM extended warranty from ANY authorized GM dealer—even GM dealers that sell factory warranties on the Internet. Make sure you’re getting a genuine factory warranty.

NOTE: Dealers may also offer an aftermarket warranty. In fact, they earn more revenue from aftermarket warranties than from factory warranties, so make sure you know which type you’re getting before you buy.

Generally speaking, factory warranties are better than aftermarket warranties because they’re backed up by the carmaker. But how good they are also depends on the level of coverage. More on that later.

The level of coverage is critical to whether it will actually cover the repair

Most warranty companies offer different levels of coverage. For example, a powertrain warranty only covers the engine, transmission, and axles. It usually doesn’t cover the starter, alternator, AC, heater, computers, emissions components, or any accessories.

The next level of coverage typically includes the powertrain, along with suspension, steering, brakes, and certain electrical components.

The top level of coverage is like having bumper-to-bumper coverage on just about everything.

Obviously, the more the warranty covers, the more it’ll cost. The key is not to fool yourself into thinking you’re fully covered by buying the lowest coverage.

Warranties come with obligations

No warranty will cover your vehicle if you haven’t maintained it properly. That means you must maintain it according to the carmaker’s schedule AND you must BE ABLE TO PROVE IT. Yes, you must save all your receipts. And you have to do each recommended service at the proper mileage or time specified in the owner’s manual. Skip the maintenance, and you risk having your entire claim denied.

How to read the fine print on a car extended warranty

Since the warranty is like an insurance policy, you can’t just gloss over the page and assume you’re covered. The first section to read is the EXCLUSIONS:

Extended warranties do not cover maintenance (oil, fluid, coolant changes, AC recharge, spark plug changes, bulbs, belts, tires, brakes, etc). They also routinely exclude squeaks and rattles. But if the squeak or rattle is caused by the failure of a covered component, it should be covered. For example, you’ve changed your oil religiously, and the oil pump is starting to fail. You take it in for service after hearing a knocking sound. A weasel company will automatically deny the claim due to the “squeak clause.” But a real company will pay for the oil pump. See how this works? Look specifically for this deal-breaker: emissions or emissions components. If you see that phrase, it means you’re not covered for any computers, sensors, or malfunctions of the fuel, ignition, or catalytic converter systems in the vehicle. And that’s where you’re liable to ring up the most repairs! If the warranty excludes those, walk away.

The next section to read is DEFINITIONS. This is very important. The word “failure” means different things to consumers than to warranty companies. Since you’re bound by THEIR definition, you’d better read it upfront. Do NOT depend on the salesperson or the finance person to give you their interpretation of what the terms mean. They’ll be long gone when it’s time for you to file a claim.

Here’s what to look for:

Failure – a component can fail to perform its intended function for several reasons. It could be defective. It could be worn out from normal wear and tear. Or it could be damaged by another failed component. As expected, you want the definition to include all three. Weasel companies will define a failure as a defect only. Part wore out? So sorry. Not covered.

Fluids – As noted above, no warranty covers normal maintenance. But what if your air conditioning compressor springs a leak, and all the refrigerant leaks out? They should cover the cost of the new compressor and the new refrigerant because a covered part failure caused the refrigerant loss. Get it?

Diagnostic charges – You don’t want your mechanic guessing what’s wrong with your car. Neither does your warranty company. They want it fixed right the first time. They just don’t want to pay for a proper diagnosis. A weasel company will work it this way: “We will pay for the cost of tear-down and inspection IF the failure is a covered component.” I have seen companies deny coverage for performing a computer scan. In those instances, you have to wait until they identify the root cause, then argue with them over the definition of “teardown and inspection.” Is a scan a teardown? I’ve won the argument by arguing that a scan is an inspection and that a teardown to identify the root cause would have been more expensive. But the bottom line is this: Do you even want to have this fight in the first place? Don’t buy from a weasel company.

Can the extended warranty company tell you where to have it fixed?

Most car extended warranty companies go out of their way to tell you that you can take your car to any repair shop. But they also know that the dealer will be more expensive than an independent shop. So, how do the weasel companies get around this? They have a policy clause stating they will pay the “reasonable and customary” charges. Then, when you submit the claim, they’ll tell you that the dealer’s labor charges are higher than reasonable and customary. You can counter that by surveying all dealers in your area to prove that your dealer’s charges are in line with those of all the other dealers. But do you really want to spend your time that way? The warranty company cannot require you to take your vehicle to a less expensive shop unless that provision is included in its policy.

New parts? Old parts?

Here’s when things can get really hairy. Many times, the dealer doesn’t sell rebuilt parts. A new BMW alternator from the dealer costs almost $900. A rebuilt alternator for the same vehicle is $400. A used one is $150. Which one does the warranty company want? You can insist on a new one only if your warranty says that. Find out exactly what the warranty says about parts before you buy them!!

How to negotiate the price of a factory extended warranty

I said earlier that factory warranties are NEGOTIABLE. No dealer will openly admit that. They insist they cannot handle a factory warranty.

Here’s how to haggle for a discounted price. Meet with the finance people and agree to every single item they try to sell you. Warranty, glass protection, paint sealant, etc. Then, ask what the new payment will be. In the meantime, the finance person will determine how they intend to spend their commission (they work on commission). When you hear the new monthly payment, panic and tell them to remove it all–including the warranty. Then tell them you’ll buy your warranty online. They’ll tell you that those are no good. You tell them you know someone who has a really good online warranty company. Be prepared to walk out on the deal (not really). At the very end, they’ll drop the price. I’ve done this with my car, my son’s car, and my daughter’s. Works every time. After they’ve mentally spent their commission, they won’t want to let you walk out without buying it from them—even at a discounted price. Hey, car buying is a blood sport.

How to find a good aftermarket warranty

Speak with a service writer at a dealership. They work with the aftermarket warranty companies all day. The weasel companies take up their time and put them in the middle between the mechanic who wants to fix the problem and the warranty company that doesn’t want to pay for it. They know which companies are good ones, and they maintain a blacklist of companies that won’t pay or make life difficult. Ask them. They’ll tell you.

© 2012 Rick Muscoplat