Should you buy a used car warranty?
The answer is simple; NO! They’re simply not a good investment. If you’re buying a vehicle with a poor repair history, the used car warranty will be priced high to reflect the warranty company’s risk or they’ll price it low but exclude the items that fail most often. You’ll think you’re buying protection against unexpected failures, but most of your claims will be denied. In most cases, you will never get your money’s worth from a used car warranty. Let’s take a look at how used car warranties are sold and priced and how the companies weasel their way out of paying claims.
How used car warranties are sold
Warranties are sold three ways; from the selling dealer, direct to consumer through TV or online ads or through an insurance broker. Direct to consumer brands like CarShield, Endurance and Autoassure often use a combination of TV, online and brokers.
Many used car lots offer a used car warranty when you’re closing the deal in the finance office. None of these extended warranties are issued by the actual car maker. Instead they’re sold by aftermarket sellers. The finance people at the dealership make a large commission when selling these service contracts and that’s why they pour on the sales pressure. How much does the dealer make? Usually 50%
How used car warranty prices are calculated?
A used car warranty is really just an insurance policy. And just like any other type of insurance, the prices are based on the risk to the company. So skilled underwriters look at the repair track record of every vehicle and to calculate how much they’re probably going to pay out in claims over the term of the contract and the number of miles. One they calculate the repair costs, they add an additional risk factor adjustment to cover their butts in case they’re wrong. Then they add in their profit, the cost of advertising and sale commissions and then add another amount to cover “negotiating room” in case you balk at the high price.
There’s really no free lunch here. Insurance companies aren’t stupid, they know how much they’re going to have to pay out for repairs on your car and you’re going to pay at least that much plus all their marketing costs and profit. That’s why used car warranties rarely if ever make sense.
What type of warranty you buy determines what they’ll cover
Car warranty companies usually offer three packages; bumper to bumper, powertrain and powertrain plus electronics. If you don’t know exactly what those packages mean, you are going to get screwed. Let’s take a look at a few offerings from a used car warranty seller like CarShield
Now let’s take a look at the fine print.
Rick’s disclaimer: I have no connection to CarShield. The information I show in this post came directly from the carshield.com website on 6.4.19. I am not implying that CarShield policies are good or bad or whether the company is reputable. That is something you should research on your own. My only goal is to show you what’s not covered by this top end warranty. The coverage determinations I make are as an ordinary person trying to interpret the language of the Carshield sample policy as shown, not as an attorney (because I’m not) or an insurance expert. With this in mind, interpretations may be incorrect. If in doubt, contact CarShield for clarification of the terms of their contract.
Engine coverage: If read the coverage as printed, if the block or cylinder head cracks and the crack isn’t caused by an internally lubricated part, it’s not covered. Notice that the head gaskets, intake and exhaust gaskets are not mentioned as covered items.
Transmission and transfer coverage only covers internally lubricated parts. Not listed: shift solenoids or the transmission control module which are fairly common failure items on all electronically controlled transmissions.
Drive axle. A torn CV joint boot or a broken axle shaft are common and appear to not be covered.
Suspension parts. Ball joints aren’t listed.
Steering coverage doesn’t list inner and outer tie rods and ends or pressure and return hoses, ie the most common causes of leaks and steering wear.
Electrical coverage doesn’t list the window regulator which fails far more often than the motor, body control module, fuse box/smart fuse box, transmission module, ignition switch, remote keyless entry, cruise control actuators or radio.
AC coverage doesn’t include the heater core, heater lines, High and low pressure AC lines and ports which are all common leak points.
Fuel coverage includes the fuel delivery pump, fuel injectors and fuel tank. Not covered: High pressure pump, fuel pressure regulator, fuel pump driver module.
High Tech coverage is not available for vehicle with over 80,000 miles.
Luxury Electronics coverage include items like Factory GPS, display screens, DVD players, backup camera but cover only 1 replacement and doesn’t not apply to remote controls and is not available for vehicle with over 80,000 miles
Emissions, air, fuel coverage: The sample document doesn’t list emissions items like secondary air pump and valves or the catalytic converter. It also doesn’t list oxygen sensors, MAF, MAP, coolant temp sensor, ambient temp sensor, knock sensor, variable valve actuators, electronic throttle body, runner actuators, etc.
In addition to not covering the most common sensor failure items, many used car warranties tightly define their definitions. For example, a company may limit the definition of the word “failure” to include only defects, instead of wear and tear. So if a part wears out and fails, it might not be covered, since it’s not actually a defect.
The CarShield warranty shown here covers seals and gaskets for failure on covered parts but specifically excludes seal and gasket seepage. Seal and gasket coverage is not available for vehicles with over 80,000 miles. It also says minor fluid loss due to expanded/contracted/aged seals and gaskets are not considered a mechanical breakdown or failure. If you’re considering a warranty from CarShield, get a current contract for your vehicle and read it before purchasing to confirm whether the seals and gaskets are covered for your vehicle.
Every shop charges a diagnostic fee. Most used car warranties don’t cover the diagnostic or tear down charges unless the diagnosis concludes that a covered part caused the failure. In other words, If the shop tears down your engine and finds that the cause of the failure isn’t covered by your warranty, you pay for all that labor.
Lack of maintenance
Let’s get serious here for a second. No use car warranty company is going to cover a failure caused by your neglect. If you don’t change your oil, coolant or transmission fluid on time and that causes a failure, kiss your coverage goodbye. Not only that, but you’d better be prepared to PROVE you did the maintenance on time, and that includes normal inspections; like checking the oil level.
No warranty is going to cover an engine, power steering pump or water pump you didn’t check/change the fluids. A car warranty can’t fix stupid.
If you buy an unreliable car make or model and think you can cover your butt by buying a used car warranty, think again. The policy will cost at least as much as the repairs would have cost if you hadn’t purchased the warranty. If you buy a reliable car, you probably won’t even use the warranty, which is a total waste of money. That’s why most financial planners and consumer affairs experts tell you to pass on a used car warranty.
©, 2019 Rick MuscoplatPosted on by Rick Muscoplat