Advantages and Disadvantages of Car Repair Insurance

June 12, 2013

Turn unexpected car repairs into a fixed, manageable cost with car repair insurance. Find out how auto repair insurance works.

To some people, car repair insurance is just a waste of money, but for others it's a good solution for keeping auto repair costs in check. Many drivers swear by this kind of insurance for protecting an investment in a vehicle. Here are some of the benefits of auto repair insurance.

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Your standard auto insurance policy that you use to legally get a vehicle on the road will not cover repairs. Even if your policy includes collision and comprehensive coverage, it will not cover repairs on parts that fail or wear over time. A warranty will cover repairs, but warranties eventually run out. That's where car repair insurance comes into the picture. Insurance for car repairs is insurance that covers normal breakdowns and part failure, not generally covered by a standard auto insurance policy.

Car repair insurance is a type of policy that some might call "extended warranty coverage." Some car repair insurance can be targeted to specific parts, such as major engine or transmission damage, or other specific vehicle systems.

For example, if you were driving and ran into a light post, if you have comprehensive and collision insurance coverage, your insurance company would help pay for the repairs. However, if your water pump blew while you were driving, your regular car insurance would not cover the repair. Car repair insurance would cover such an eventuality.

Keeping Mechanics Honest
One of the big advantages to having the right auto repair insurance policy is that it covers the total cost of some major repairs. When customers are paying out of their pocket, some mechanic shops have no problem charging endless amounts of money for their services. With the right auto repair insurance, the insurance company not only picks up the tab, but it also regulates the costs, and lets a customer or policyholder know if the mechanic's charge is excessive.

Do You Need Bumper to Bumper?
Bumper to bumper car insurance means that most of the components needed to operate your vehicle safely are included in the policy. This includes, but is not limited to, the engine, drivetrain, transmission, exhaust, brakes and electrical components. However, things like body repair, broken lights, windows and interior fixes are not covered. Bumper to bumper coverage will keep you from having to spend large amounts of money for repairs.

When you purchase a bumper to bumper auto repair insurance policy, always pay attention to the fine print. This usually means hidden fees, penalties and limited coverage. One example is restrictions on what is paid to the service center. If they charge $75 per hour for labor, some policies only pay out $55 per hour. Check to make sure that you are aware of these limits and restrictions before they happen.

Car Repair Insurance in Place of a Warranty
Auto repair insurance products are basically very similar to warranties. One of the major differences is that a manufacturer's warranty, or the dealer's warranty, runs out at some point. Some car shoppers use auto repair insurance when buying an older vehicle, covering it in a similar way to more expensive vehicles that carry standard. This is a good thing for people who want the peace of mind they would get with a new car or a late model certified pre-owned vehicle, but don't want the corresponding price tag that comes along with these warrantied vehicles.

A Menu of Options
Auto repair insurance policies are "À la carte," in that a driver can purchase an insurance policy for specific parts or systems, from the engine and transmission to different auto parts systems, such as an electrical system or brake system. A customized auto repair insurance policy can cover just what the driver is worried about, providing precise, effective coverage for specific mechanical breakdown situations.

Budgeting Auto Costs
One of the biggest roles of an auto repair insurance policy for households is in budgeting and lowering overall auto costs. Where high out-of-pocket repair bills can bankrupt a household or cause financial challenges, auto repair insurance works to help budget repair into a financial situation by replacing liabilities for high one-time costs, with manageable monthly premium amounts. That way, drivers know that they are covered for any contingency that could end up costing a good deal of money otherwise.

All of these are reasons why many drivers opt for auto repair insurance policies. It's important to read the fine print of a policy carefully before buying. To be sure you're getting what you need, at a price you can afford. Having the right auto repair insurance can be helpful in managing the overall costs of your daily transportation.

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Disadvantages of Car Repair Insurance

Despite the benefits of car repair insurance, a huge number of drivers prefer to take their chances without it. Why? Here are a few reasons why car repair insurance is not a universally applauded product:

  • Partial coverage. Car repair insurance is customizable. That is, there are different options for insuring the transmission, the engine, the fuel system and all other kinds of parts. The problem is that these add up. Drivers generally don't know which part of their car is going to break first, nor can they really predict which parts of the car will be most troublesome over its lifetime. That's one problem with signing up for car repair insurance that only covers certain parts systems.
  • The insurance burden. Drivers already pay a good bit of insurance, just to get a car on the street. Since today's basic liability insurance doesn't cover at-fault damages, many drivers go with comprehensive insurance, which incurs additional costs. Many drivers are happy just to get all of the required insurance for dealing with the costs of a wreck or collision. Car repair insurance puts even more of an insurance burden on the driver's wallet.
  • Claims handling. Those who routinely deal with any kind of insurance know the game that insurers often play: an insurer will enthusiastically endorse an insurance product, and sign up new customers. Where it gets tricky is when the insurer is asked to actually pay a claim. Insurance buyers know that fine print can "void" much of the insurer's obligation. In the minds of many drivers, there's no point in paying for theoretical breakdown situations, only to find that in the rare chance that they do occur, some clause in the policy lets the insurer off the hook.
  • The waiting game. When insurers do pay out, it may take months for the payment to reach the customer. That's time that a driver may not have to balance his or her checkbook against the financial liability of the vehicle breakdown. Again, a large number of drivers choose instead to keep money on hand for use in the event of a parts malfunction or breakdown of the car or truck they depend on for daily transportation.

If the driver already has a trusted mechanic to do any necessary work on a vehicle, he or she will probably not opt for car repair insurance. One reason that drivers may shy away from this kind of insurance is that the insurer may be only interested in collecting premiums, and not be really interested in paying claims. Anyone with any kind of insurance can tell you that getting claims paid is a major hassle. That's why if a driver figures out that the long-term costs of the insurance versus the necessary repairs equals out, they will often take their chances and pay out-of-pocket for repairs. This is especially true for drivers who are a little savvier about vehicle repair, and can use their knowledge as leverage to negotiate with mechanics.

If car repair insurance is tempting you, think about some of these basic considerations before signing on the dotted line. That's not to say that this kind of product isn't good for anybody, just that it's not for everybody, and the above issues tend to make it unattractive to many drivers.

How Much Does Car Repair Insurance Cost?
One of the questions a lot of people have about car repair insurance is how much it will cost. This is a question that is not easily answered with an overall number. There are several different factors to think about to realize what a car repair insurance policy will cost you:

  • Repair costs are escalating. To determine the overall cost of a car repair insurance policy, you must start with the actual costs for repairs to your vehicle. This will take a little bit of research on your part, but simply doing some searches for parts will help a great deal. For example, a complete engine overhaul for a mid-sized SUV can end up costing approximately $3,000, with parts and labor. Without any type of insurance to protect you in the event that something does happen to your vehicle, you will end up having to pay this amount out of your own pocket. However, this is not the worst news. As the years goes by, having the same job done will end up costing more.
  • The age of the car. Depending on the age of your car, your premium could cost more. If you have a car that is less than five years old, you will be paying a few hundred dollars a year. However, a vehicle 5 to 10 years old will double that number.
  • The mileage on the car. How much you actually drive your vehicle also determines the cost of your policy. Less than average mileage gives you a little bit of a break on your policy, while mileage that is way over the average increases your rate.
  • The condition of the car. The general condition of your vehicle also has an impact on your insurance cost. A car that has been regularly maintained and not driven rough will have a lower cost than one that has been driven in excess.
  • Deductibles. As with any type of insurance policy, there is a deductible that is your responsibility. This can range from anywhere from $50 to $200 or $300, depending on the coverage you have for your car. A higher coverage will result in a lower deductible. What you want to think about is whether or not it is worth using your car repair insurance if the repair is less than the deductible.
  • Hidden charges. Taxes, surcharges, processing fees, claim fees, and other hidden fees can pop up throughout the length of your policy. Knowing what these are and when you pay them, will help you figure out how much your car repair insurance will cost.

Manufacturer Plans vs. Third Party Coverage

One type of car repair insurance is sold through the vehicle manufacturer. They offer this plan to you either when your standard manufacturer warranty runs out, or when you purchase your vehicle. If they offer the car repair insurance when you purchase your new vehicle, they often offer additional coverage on their extended warranties, beyond what they offer on the standard manufacturer warranty. However, these plans can be more expensive than other plans, and the manufacturer often requires that you keep your mileage very low—below the average. Additionally, you have to use the dealer for any repairs.

Companies not affiliated with any dealer or automobile manufacturer sell third-party plans. These plans vary in coverage and safety. There is a high incidence of bankruptcy among car repair insurance and extended warranty providers, especially among those with no affiliation with a dealer. Look at each company carefully before you purchase coverage, and be sure the business has a good reputation. Find out how claims are handled and research customer satisfaction.

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How to Get the Best Car Repair Insurance Rates

In order to get car repair insurance at the best price, you need to provide the insurance company the lowest possible risk. This puts you in a quandary. You need car repair insurance on vehicles that are older and more likely to break down. But these are exactly the cars that demand the highest rates from the insurance companies. If a car is expensive to repair, then it will also require high car repair insurance premiums.

Car repair insurance is also known as extended warranty coverage. More people are familiar with this term, and have a better understanding of what this means. Traditional insurance companies are not in the car repair insurance business, and consumers shouldn't think of car repair insurance in the same way that they do liability and collision insurance. Therefore, to get the best rates on this type of insurance, you should deal with the older, more reputable companies that have good claim payment records. The premium prices you pay for these companies will be better values.

Almost all car repair insurance guides suggest shopping around to get the best deal possible. This is a very useful tip, because the prices can vary significantly, depending on the company you are buying from. By spending time shopping around, you will be able to get much better value for your money, and find a reliable car repair insurance company, who will look after you when anything goes wrong.

Don't Only Focus on Price
You should be careful not to get too obsessed with the prices of these policies. By looking only at the price, you're asking for trouble. This won't take into account the features offered by the policy. You must look for a policy which provides everything you need at a cost you can afford to pay, rather than simply choosing the cheapest policy out there.

If a policy is too cheap, then it stands a very good chance of being a scam designed to con you out of your money, without offering you the service you think you're paying for.

Reading the Terms
Before paying any money, make sure you read through all of the contracts and terms. This includes looking through the fine print, so you can ensure you're not getting ripped off or conned. It's essential you read through all the terms, so you know exactly how everything will work. Also check who is covering the policy, and find out how long they have been in business.

Never Pay up Front
No matter how cheap a policy is, you should never pay up front to put problems right. Some policies request you pay for repairs first, and then claim the money back later. However, the chances of you ever getting the money back are remote, to say the least. There is very little chance of you recovering your money.

Although you want to get the cheapest price available, you do need to be careful. Keep your wits about you, so you don't risk choosing a policy which will end up costing you more money than it's really worth.

What to Avoid
You should avoid car repair insurance companies that market heavily with scare tactic promotional materials. Those who send the cards in the mail or make the ominous telephone calls warning that your factory warranty is about to expire, often have the highest rates for the least amount of coverage.

Also avoid pre-paid service contracts sold by commissioned third-party salespeople. These salespeople often have no concern about whether or not you get good service. Also, these policies often have many exclusions in their coverage, and may not be accepted by your auto shop. This increases the cost of the policy.

Car repair insurance can be a lifesaver if your transmission fails, or an engine seizes. However, purchasing this coverage from the wrong company can mean paying excessive rates that make it inefficient and not cost effective.

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Applying For Car Repair Insurance Online

You may be able to apply for car repair insurance online, especially if you go through a dealer. However, you should be aware that you may not get the most competitive rates that way.

If you have decided to purchase car repair insurance, applying for the coverage online can be a good idea. There are some things to take into consideration if you do so.

  • Dealers often call the car repair insurance an extended warranty. This extends out past the dealer's original warranty, and may offer additional benefits that the first warranty did not offer.
  • This coverage will likely be easy to apply for online, and you will have few difficulties in processing. Dealers that have been around for some time generally want to keep their customers happy, so even if they have a problem financially, they provide a way to pay the claims for their customers.
  • On the negative side, policies through dealers are the most expensive type of car repair insurance, and they have many exclusions. You have to use the dealer for any repairs, and are stuck with their charges.
  • A common arrangement in car repair insurance or extended warranties is a cooperative agreement between a dealer and a third party provider. You may be able to apply for these policies online, through a website provided by the dealer itself. The website will likely be operated by the third party insurer.
  • These types of warranties can be easy to use. The dealer and the warranty company have likely already reached an agreement about pricing, so you are rarely involved in a dispute.
  • However, these third parties are known to go bankrupt with some frequency, and you should ask your dealer if they will continue to honor the warranty even if the company goes bankrupt. Prices on repair work will likely be very high, since there is no reason for the dealer to be competitive.

Myths about Extended Warranty Auto Repair Insurance

Auto repair insurance policies are commonly misunderstood. Because of these misunderstandings, many people have to pay out of pocket for expensive car repairs. Make a good decision regarding your vehicle, by knowing some of the different myths about auto repair insurance policies.

You Do Not Need More Insurance
With the amount of insurance that people have today, car, health, home and life, is there really a need for more insurance? Typically your car already has a warranty, as well as collision coverage. For new vehicles, this is great. When you buy a used car, you are typically given a short term warranty, with limited coverage for only three months. After this, if you do not buy an extended warranty, you will be liable for any repairs needed. In the case of transmission, drive train or engine replacements, this can be in the thousands of dollars. Auto repair insurance helps protect you in the event your used car needs repairs after the warranty expires.

Auto Repair Insurance Is Just an Extended Warranty
Many people do not realize that there is a difference between an extended warranty and car repair insurance coverage. A warranty is for a specified period. Even an extended warranty will run out after time, depending on the age of the vehicle. Auto repair car insurance is available for as long as you need it. You can continue to keep the policy regardless of the age of your vehicle.

Auto Repair Insurance Only Covers Part of the Repair
A common myth is that when you bring in your car for repair, you will still have to pay for part of the charges. While this is true of some policies with a deductible, you can also purchase auto repair insurance policies that pays for the entire repair bill. When you have a $4,000 bill for a new transmission, this can be a lifesaver.

Auto Repair Insurance Does Not Pay for Existing Problems
A lot of people try to get auto repair insurance when they know that their vehicle is going to require costly repairs. While being unethical, it is also not going to work. Many companies require you to state your current vehicle's condition, as well as have a time period before any claims can be made.

I Have No Say How Repairs Are Done
That is not entirely true. When you take your car in for repairs, you can state what you want done or what types of parts you want to use. This will save you on any penalties that are included with expensive repairs.

Everything Is Covered with Auto Repair Insurance
A common myth is that your entire vehicle is covered with auto repair insurance. Like most warranties, the coverage is limited by the policy. If your policy covers the failing of any transmission, engine or drive train components, then you will not be covered for any brake problems. There are different types of coverage at different costs for limited or full coverage.

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Related Questions and Answers

Do Auto Repair Shops Offer Insurance on their Repairs?

Auto repair shop insurance depends on the jurisdiction. For example, there are states where, if the vehicles have fewer than 60,000 miles on their odometers, then the shop must insure their work for three months or 3,600 miles. If the vehicle has between 60,000 and 90,000 miles, then the shop must insure its work for at least two months or 2,500 miles. If the vehicle has between 90,000 and 129,000 miles, then the shop must insure its work for at least 30 days or 1,250 miles. The answer then, is yes. Auto repair shops must insure their work for specific periods. Remember, though, that the work the shops are offering is the specific work they do. Although, if a dealership has sold you the vehicle, then the entire vehicle is usually insured for the length of time mentioned.

What is Insurance Salvage Recovery?

Insurance salvage recovery is the reclamation of all salvageable parts of a vehicle through auction or other sale. The vehicle may be totally recoverable or may have a salvage title that indicates that the vehicle has been involved in some sort of action where the original title no longer applies. Salvage cars may have been involved in theft or accidents or other issues that have rendered them as a salvaged vehicle. Please note that some of the vehicles may be in perfect shape, but may have been involved in repossession, so the bidder may have to pay off the face value of the note before a salvage title may be cleared. Salvage cars may also only be good for parts use, and may be sold under a salvaged title. The salvage title may remain in tact.

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