Auto Warranties and Service Contracts 101

March 22nd, 2022 by admin Leave a reply »

Factory Warranty

All vehicles come from the factory with a warranty that is provided by the manufacturer. These factory warranties range in coverage from three years to ten years and cover anything from powertrain to full coverage.

Vehicle Service Contract

When the warranty provided by the manufacturer runs out, your vehicle is no longer protected from expensive repairs. The best time to purchase a service contract is shortly before your full coverage (or bumper to bumper) warranty expires. At that time you can choose to continue your coverage by extending the warranty with a vehicle service contract. A warranty is provided free of charge by the manufacturer. A warranty can never be sold, whereas a service contract may be sold at a dealership, in the finance office of a bank or credit union, on through a third party online.

Powertrain: A powertrain service contract covers the engine and transmission components of your vehicle. This is the most basic coverage and will be the longest portion of your factory warranty. Some vehicles come with a factory powertrain warranty of up to ten years. But you may want to cover some of the other components when your bumper to bumper warranty expires (usually after three years or 36,000 miles).

Component: A named component plan provides additional coverage beyond the powertrain service contract. These plans vary greatly by administrator, so read the benefit section of the contract carefully. They will list the additional vehicle components that are covered. These contracts will provide you with additional coverage when the bumper to bumper portion of your factory warranty expires.

Bumper to Bumper: “Bumper to Bumper” or “Exclusionary” plans cover everything on your vehicle except those components specifically excluded. Things excluded typically include maintenance items.

Terms of the Contract

Term of coverage The term of coverage is the length of time your vehicle is protected. This is generally stated in terms of months and mileage (ex: 36 months/36,000 miles). The term is whichever you reach first, the mileage or months.

If you are purchasing a “new” vehicle service contract, this term begins with mile one and day one. (Example: You purchase a 72/72,000 new vehicle service contract – the term runs out at the first of either 72 months or 72,000 miles on the odometer) You can purchase a “new” vehicle service contract on a vehicle as long as the factory warranty has not expired. Some administrators will offer “new” coverage up to 50,000 miles on the odometer at issue.

If you purchase a used vehicle service contract, the term begins with the date of purchase and current mileage. (Example: You purchase a 72/72,000 used vehicle service contract when your vehicle has 60,000 miles on it – the term will end 72 months from the date the contract is purchase, or when your vehicle reaches 132,000 miles)

Waiting Period: Most service contracts that you purchase from an online source have a waiting period of 30 days and 1,000 miles. When you purchase in a dealership, the dealer knows the condition of your vehicle and knows it is not about to break down. When you purchase from an online source, the administrator does not know the condition of your vehicle, so they place a waiting period into their contracts to insure against someone with a broken down vehicle purchasing a contract to cover their current repair cost. The 30 days and 1,000 miles are generally added to the end of your contract period.

Deductible: Unlike a warranty, your service contract will come with a choice of deductibles. The deductible you choose will apply to each claim made against the contract. Deductibles range from zero to $200.


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