Just because you spent $3,000 on one of the best extended car warranties doesn't mean you're covered for everything and are going to get your repairs paid for when a breakdown occurs.
Similar to insurance companies, these services have to approve or deny the repairs before the mechanic can get you back on the road. And if you don't pay close attention to the contract, you're putting yourself at risk.
In an article published by Real Simple, an investigator for the Better Business Bureau said, "Sellers often cite loopholes in the contract (ones you would never be able to discern) to avoid paying up."
Every contract is loaded with clauses you need to read carefully before you sign. However, some clauses are common in all the contracts we read, and they either leave too much interpretation to the service and what's covered or require special attention from you, as the driver.
Here are some tips for what you should look for in the contracts and other considerations before buying an extended warranty. This way you'll know what's covered by an extended car warranty and what's not.
Taxi service and other commercial uses
Contracts won't approve repairs if you use your vehicle for commercial purposes. In most of the stipulations, such as using your vehicle as an emergency transport vehicle, it's a reasonable exclusion. However, this includes taxi service – you can't drive for Uber, Lyft or other drive-sharing taxi apps, even if your car breaks down when you're not driving to supplement your income. If you do, you risk voiding the contract.
Mechanical breakdowns caused by common elements
Parts break, in large part, because of the elements they are exposed to – heat, moisture, salt, vibrations and more. By including these causes in the exclusionary section of a contract, a service can deny nearly any repair. It doesn’t matter if you maintained the strict maintenance schedule and kept all your reports; if a part failed because an unseen bolt rusted out, your repair is denied.
Breakdown caused by a failure in nuts, bolts or fasteners
Speaking of bolts, your repairs are denied if the cause of the failure is deemed to be the result of a bad nut, bolt or fastener. These seemingly minor components do wear out regularly and can cause components to break down or wear out faster than usual, even if you adhere to a strict maintenance schedule and proper driving techniques.
Failure to observe warnings
The service can deny repairs if they believe you failed to properly observe early warning signs. This is a significant loophole because every mechanical failure could be argued to have some early warning signs. While some warning signs are obvious, such as an engine warning light or gauges, most warning signs are not obvious to most drivers. You may not realize your vehicle is leaking fluids unless you're looking for it. You may not know how to identify bad sounds in an engine or the ominous vibrations from bad wheel bearings. These are all listed in the clauses, and yet the contracts often state something along the lines of: "Lack of mechanical knowledge is not an excuse."
Failure to have your vehicle towed
This is a reasonable exclusion, as you should stop driving a vehicle if it breaks down to avoid further damage. However, it's far too easy to assume you can continue driving to a mechanic. For example if you have an alternator go out on your car. The car is still operating, but barely able to reach 15 mph. You rolled into the city and find a mechanic. If you have a vehicle service contract, the repair would likely have been denied. The moment you know something is wrong, you need to stop driving and call a tow truck. Fortunately, these contracts all reimburse towing costs, usually up to $50.
The potential red flag in this exclusionary clause is the point at which you decided to stop driving to call a tow truck. If they determine you should have stopped sooner, they can deny your repair.
Pre-existing issues and wait period
Every contract has a wait period before the coverage takes effect. Typically, this period is 1,000 miles or 30 days. This period makes sure you're not buying coverage because you know something is wrong. However, if a component breaks down at any time after this period, they still have the right to determine if the issue started before coverage. For example, if the wheel bearings go out on day 31, they are likely to deny coverage because wheel bearings typically start showing symptoms of wearing out weeks to months prior to seeing a mechanic. And remember, ignorance of mechanic issues is not an excuse.
The biggest pitfall to getting repairs approved is failing to pay close attention to the driver responsibility section of the contract. Every contract has a "driver responsibility" section outlining what you need to do to receive coverage.
The most important of these clauses is following your vehicle's owner manual's instructions for proper operation and maintenance schedule. You must have the vehicle maintained in accordance to the mileage specifications and you must keep receipts and other records of the maintenance. Some contracts even specify what type of receipts are unacceptable and not admissible as proof of maintenance, such as handwritten receipts.
Don’t modify your car
Every vehicle service contract prohibits vehicle modifications. Some small interior and exterior modifications can be approved by the administrator if they’re cosmetic, but you should make sure you get them approved first. However, any modifications meant to help your car run faster, better or more efficiently, even if required by law, are not permitted.
If you're not the type of driver to pay close attention to your tire pressure, oil and fluid levels, mileage and scheduled maintenance, then a vehicle service contract is not for you. You must know the details of your owner's manual and records. Otherwise, your contract is meaningless.