Discussion of an Extended Warranty for used cars
This article has been prepared for the benefit of buyers of used cars who consider the value of Extended Warranty plans. It may appear critical of one such plan that is probably fairly typical of those on offer. However, the intention was not to denigrate the Extended Warranty but to show its (sometimes severe) limitations.
Let's have a look at a typical Australian Extended Warranty information:
The following items are covered by "GOLD WARRANTY" 1 & 3 YEAR CONTRACT
ENGINE - (Claim limit: up to A$1,500 per claim)
- Items covered: Engine block (if damaged by internal components), oil pump, pistons, piston rings, crankshaft and timing gears (not linked by chain or belt), crankshaft bearings, camshaft bearings, cylinder wristpins, camshaft, internal bushings, connecting rods, balance shaft and bearings, Cylinder head gaskets are covered only when repairs are carried out on the components covered in this subsection.
TRANSMISSION - (Claim limit: up to A$1,500 per claim)
- Items covered: The internal lubricated parts of both manual & automatic transmissions (specifically excluding driveshafts).
DIFFERENTIAL - (Claim limit: up to A$1,500 per claim)
- Items covered: The internal lubricated parts (specifically excluding axles & wheel bearings).
COOLING SYSTEM - (Claim limit: up to A$750 per claim)
- Items covered: Water pump (impeller shaft, bearings & bushings), cooling fan.
ELECTRICAL - (Claim limit: up to A$750 per claim)
- Items covered: Alternator, Starter motor, Voltage regulator, Windscreen wiper motor.
STEERING SYSTEM - (Claim limit: up to A$750 per claim)
- Items covered: Rack & pinion, Power steering pump, Steering box & Internal parts.
BRAKING SYSTEM - (Claim limit: up to A$750 per claim)
- Items covered: Booster & brake callipers, Master cylinder.
AIR CONDITIONING - (Claim limit: up to A$750 per claim)
- Items covered: Condensor & evaporator, Compressor (applies to factory fitted air only) (specifically excluding Gas, leakages, pipes & hoses, thermostat). Oil & Water leaks excluded in all of the above.
SUSPENSION - not covered at all (such as leaking shock absorbers, TEMS, air-bags, active struts).
I note that some monetary limits per claim shown above seem unrealistically low, especially for the engine, transmission and electrical problems.
Of course there are the "ROYAL GOLD", "ROYAL EXTRA" and "ROYAL GOLD EXTRA" 1 & 3 YEAR CONTRACTS with increased limits but not substantially increased coverage available at higher costs, as shown below:
The "Royal Gold" warranty is identical coverage to the above except that the cover for the engine, gearbox and differential is increased from $1500 per claim to $2000 per claim and the other items are increased from $750 to $1000 per claim.
"GOLD EXTRA COVER & ROYAL EXTRA COVER" 12 MONTHS EXTRA COVER. For an extra $300 we can supply a 12 Months GOLD Extra Cover, or for an extra $500 we can supply a 12 Months ROYAL Extra Cover on the items listed below. Any component not listed below is not covered by the Warranty Contract.
Electric Solenoids and Computers - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL)
All electric ignition components - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL)
Fuel pump and injection systems - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL). (specifically excluding fuel injectors and injection service items).
All ABS braking systems - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL). (specifically excluding brake pads or linings or service items). Cylinder Heads, Head Gaskets, Valves & Lifters - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL. (specifically excluding overheating or corrosion). Drive Shafts, CV Joints, and universals - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL) ¶ Radiators - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL). (specifically excluding any damage caused by collision or the result of road surface projectiles). Power Window Motors - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL) Factory fitted Turbochargers - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL).
Some of the items shown as "apparently not covered" may be problems resulting from the owner's negligence in not servicing his/her vehicle properly or omissions and failures to take due precautions or simply not observe engine instruments when driving. Typical example of such a problem may be the engine overheating that may be caused by a lack of maintenance (low level of coolant in the radiator) or a failure of the water pump/drive belt or water hose that should have been noticed by observing the raising coolant temperature gauge before any engine damage was caused.
Other examples in the "not covered" category are items that may develop when the vehicle is in service, such as oil, coolant and A/C gas leaks or general wear and tear, such as worn brake discs/drums, clutch, shock absorbers and other items.
Another category of "not covered" problems may be the result of driver's accidents, such as the front wheel alignment problems.
Certainly everybody would agree that no insurer could reasonably cover such faults as they are within the control of the vehicle owner. However, other "not covered" problems do not fall into the "driver induced" category, such as most electrical problems that normally just happen. Insurance cover of these would be desirable for the owner's peace of mind as they are often expensive to repair.
After perusing the above insurance contract a cynic might say that an extended warranty seems to offer a cover for items of equipment that rarely fail. How often does one experience a failure of the engine block if damaged by internal components or failed timing gears as against the more likely broken timing belt that is not covered. Insurance cover for a failure of now common turbochargers is only available at extra costs and to a fairly low level of compensation. Other more mundane and potentially expensive failures are excluded entirely, such as problems with electronic instruments and central locking or audio systems.
It is important to consider that all Extended Warranties require regular servicing at nominated time and distance intervals and these can be as short as 3 months/5000 km, e.g. for turbocharged cars. It is important to do simple sums, how much are these extra services going to cost throughout the whole extended warranty period plus the cost of the actual warranty cover and compare the total figure against the cover provided.
Quite likely there are other extended warranty plans that may differ widely in their benefits and exclusions. For making an informed decision about their real worth it is good not only to read but study the fine print.