Finding Insurance for Auto Repairs

Car repair insurance is an extended warranty that covers things like transmission, engine, and brake damage. You should purchase car repair insurance for new cars with a dwindling warranty.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Jun 4, 2020

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Here's what you need to know...

  • Auto repair insurance is not required by state law and can therefore be difficult to purchase
  • Read the fine print in your policy to make sure you are paying for adequate coverage before buying
  • Auto repair insurance is not the same thing as towing and labor coverage
  • Older vehicles are less likely to benefit from an extended warranty like auto repair insurance

If you have visited your car insurance company’s website to look for auto repair insurance, you might have been surprised to find that there were no options for this type of insurance beyond towing and labor coverage.

The majority of auto insurance providers do not offer auto repair insurance.

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Auto repair insurance is simply an extended warranty that is sold outside of the manufacturer of the vehicle and outside of the car dealer you purchased your vehicle from.

Auto repair insurance is not required by your lien holder like collision or comprehensive coverage, nor is it required by your state like basic liability.

Third party auto repair insurance covers the cost of predetermined issues that may occur in the normal course of operating your vehicle.

What is Covered

Rotating tires at an auto shop

The bottom line is that when you purchase an extended warranty, what’s covered under that warranty will depend on the details of your contract. There are no extended warranty policies that will cover the cost of wear items on your vehicle, such as brakes and tires.

It is important that you read the policy you are considering purchasing very carefully before you make your final purchase.

There are some unscrupulous companies out there that will charge you several thousand dollars for this warranty but only cover one or two items, or they may have a limit on how much they pay for repairs.

By reading through your contract, you will come to understand what is covered and what isn’t. If you don’t know what a term means, look it up!

Extended warranties are expensive. Even the most basic of warranties are expensive, and you need to ensure that you are getting what you pay for.

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What to Look for in an Extended Warranty

Your extended warranty should clearly state the amount of time for which your vehicle is covered  In addition, many policies have an “or” clause: 3 years or 100,000 miles, for example.

Many people make the mistake of assuming that they have 3 years when, in fact, they are limited by mileage as well.

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In addition, you should check the exclusions in your policy. A good warranty will include your power train, which includes the following items:

  • Engine and transmission
  • Electrical systems
  • Steering and handling systems
  • Braking systems minus your pads and shoes, which are wear items

In fact, if you can purchase a bumper to bumper warranty, that will be the best coverage possible.

If the power train is excluded, then don’t buy the policy! This is one of those areas that cost the most money to repair and where your warranty will pay off the most.

Warranty versus Towing and Labor Coverage

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Many people think if they purchase towing and labor coverage that they are getting coverage for their vehicle if it breaks down while they are driving. Unfortunately, this isn’t the case.

Towing and labor coverage is insurance that covers only the labor involved in getting your car to a shop or getting a tire changed on the side of the road. You are responsible for the cost of all the parts that are involved in a roadside repair.

A warranty, on the other hand, covers both parts and labor on a vehicle that is broken down.

In most cases you will have a deductible for each repair, which usually ranges between $50 and $100. However, this amount can be much higher and is something that should be clearly stated in your contract.

The bottom line is that towing and labor insurance is not the same as a warranty on your vehicle.

If you have this coverage, great! However, it is not the coverage that you need to repair your vehicle if it breaks down.

Who Should Buy It

The truth is that an extended warranty can save you money on repairs over time. However, the older your vehicle is, the more expensive a warranty will become until it is cost prohibitive. This isn’t cheap coverage.

In most cases, you will want to purchase an extended warranty on a vehicle that is newer but doesn’t have much time left on its original warranty. This will provide you with the additional coverage that you need to ensure that any future repairs won’t break the bank, so to speak.

You can purchase an extended warranty from the dealer who sold you the vehicle.

However, if you made your purchase from a private seller, then you will have to look to a third party warranty seller. This is also the case if you have already exhausted a warranty that you purchased from the auto dealer.

Overall, buying an extended warranty, if you can afford it, is an excellent choice for any new model vehicle.

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References:

  1. https://www.consumerreports.org/cro/magazine/2014/04/extended-warranties-for-cars-are-an-expensive-game/index.htm
  2. https://www.edmunds.com/auto-warranty/
  3. https://www.buyingadvice.com/auto-warranty/whatis-bumpertobumper-warrantycoverage/
  4. http://blog.esurance.com/towing-and-labor-coverage-defined/#.VudBn5wrK6o
  5. https://www.edmunds.com/auto-warranty/understanding-extended-warranties.html

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