A number of years ago, I bought a new Lexus RX. The Salesperson kept telling me what a reliable vehicle it was, and I told him I agreed because Lexus is highly rated. As soon as I handed over the check, the F&I person told us about all the things that could break, and therefore I needed the extended warranty.
We see a lot of TV and radio ads for automobile extended warranty products. Car Shield, American Auto Shield, Endurance, and Route 66 are some of them. A question that comes up is, “Are they worth it?” and the answer is, “It depends on a number of factors.”
First of all, how reliable is your car? J D Power rates cars by reliability each year, both new and 3-year-old cars. My advice has always been to buy a reliable vehicle. Another source to consult is Edmunds “True Cost to Own” tool. On this website, you can look up any vehicle from 2017 and newer and estimate costs over 5 years. The cost categories are Depreciation, Taxes and fees, Financing, Fuel, Insurance, Repairs, and Maintenance. So if you look at the repair costs (the extended warranty doesn’t cover maintenance costs), this can give you a good feel for what you might save by having an extended warranty depending on the policy level. Again these are average prices and would depend on past maintenance and mileage. I used a 2018 Toyota Highlander with 57,000 miles, and repair costs were $3152 over 5 years or $630 per year. For comparison, I looked up a 2018 Jeep Rubicon with the same miles, and its estimate was $1110 per year. Less reliable vehicles usually require a higher premium.
So let’s look at the policy themselves. Each company has different levels of coverage at different prices. The newer the vehicle and the lower the mileage, the more choices you have. I talked to Endurance, and the agent said there was a plan that matched the factory warranty for 5 years or 60,000 miles if your vehicle currently has less than 80,000 miles. You should read the contract for each plan to see what it covers and what it doesn’t cover. There is a specific section that lists what is not covered, and this section is the most important to read. Maintenance usually isn’t covered, but you are required to perform all the maintenance as per the manufacturer’s recommendations. Wear items are usually not covered either, and these include brakes, shocks and struts, belts, wiper blades, tires, and more. Seals and gaskets are covered by some companies and not covered by others. Gaskets and seals are a fairly common repair.
I compared the plans of 2 of the above-listed companies. The Car Shield plan for the 2018 Highlander was $90/month on a month-to-month basis. This is $1080/year or $450 above the $630 that Edmunds estimates. So $450 for insurance against a major breakdown doesn’t seem too bad. The Endurance plan was for 5 years, and for the under 80,000-mile option, it cost $127/month for 24 months for a total of $3050. This is about the same as the Edmunds repair costs. I didn’t ask if there was a prorated refund if I sold or totaled the vehicle.
To recap, there is homework to do. Don’t forget to read the reviews also. These warranties will save you money on a major repair if you end up needing one, but be sure you know what you are buying. I couldn’t find a sample contract for Carshield, and the one for American Auto Shield doesn’t list the non-covered items.
Sample Contracts:
Endurance: https://www.endurancewarranty.com/sample-contracts/
Route 66: https://www.nac-loans.com/sites/default/files/2017%20Easy%20Street%20Contract%20SAMPLE.pdf
American Auto Shield: https://americanautoshield.com/aas/CoveragePlan_Diamond-1.pdf
