Should I buy car repair insurance?
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UPDATED: Oct 18, 2021
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Car repair insurance may be beneficial, depending on the age and state of your vehicle as well as the cost of the insurance. Car repair insurance, also known as extended warranty coverage is meant to cover the cost of unexpected repairs due to normal wear, tear, and vehicle use, not those necessary in the event of an accident or collision through claims on your car insurance.
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Edmunds.com notes the insurance comes with several caveats you should heed to ensure the coverage is worth the money.
Your first concern is to make sure the car repair insurance is not duplicating coverage you already have from your original vehicle warranty. New cars are typically covered by the manufacturer for a specified period. That means you most likely do not need car repair insurance on a brand new vehicle, or at least not full insurance that covers issues that are already being covered.
Even ensuring used cars that are no longer under warranty usually requires a stringent checklist of everything the car repair insurance coverage and items or issues it does not cover, Edmunds.com says.
Paying attention to terminology is important. For instance, breakdown warranties typically cover things that actually break and stop functioning completely, not things that need repair or replacement from normal wear and tear, and it’s not car insurance that covers an accident.
Make sure you know where you are allowed to receive repairs in order for them to be covered. Some policies may require you to visit specific mechanics. Others may offer a list of different mechanics you can use. Your favorite mechanic down the block may no longer be an option in either case.
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The premiums are an important point to note, but so are the deductibles. Rather than an annual deductible common with health insurance and other policies, car repair insurance policies may charge a deductible for every single repair or every single visit.
Under the first option, you would have to pay three deductibles if your car needed three different issues repaired, even if all three were fixed at a single visit. Under the second option, you would only have to pay a single deductible for a single visit, regardless of how many issues were fixed. Edmunds.com points out car repair insurance policies with no deductibles do exist, although your premium is typically going to be higher to offset the cost of that option.
Some policies may require you layout the cash and then reimburse you for the cost of repairs. This is an especially important factor to consider if repairs are costly and reimbursement can take weeks, or even months, to come through.
Type of Vehicle
Certain cars seem to run like a charm for ages, while others seem to break down at every turn. Your chances of a breakdown or costly repairs are not always random luck. Statistics actually exist. If your vehicle happens to be on a list of cars that need frequent and costly repairs, car repair insurance may end up paying off in the long run.
On the other hand, if your car is on a list of those that rarely break down and are inexpensive to fix, car repair insurance may end up costing you more in premiums than it pays out for repairs. Researching the repair cost and rate of the make, model and year of your vehicle can help you decide if the cost of insurance may be worth it.
Extended warranty scams are all over the place, warns the Federal Trade Commission, but you can avoid them by paying attention to several key factors. For starters, it’s best not to trust a sales call or urgent-looking letter that arrives out of nowhere exclaiming your car’s warranty has expired and you better act fast to extend it.
You can double-check if your warranty in fact, has expired by contacting the manufacturer if you are not sure. You would also be wise to check on the company offering the car repair insurance to make sure they are legit and in good standing with the Better Business Bureau, your local Attorney General and consumer protection and reporting groups.
Even though car repair insurance is also known as extended warranty coverage, the FTC points out that the policy is technically a service contract.
Federal law covers warranties, which generally come with new vehicles and sometimes with used vehicles. Service contracts may be legitimate and even beneficial, but they are not covered by federal law. As a buyer, just beware what you’re getting into and make sure it meets your needs and is worth the money before you sign on the dotted line.
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