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"I'm covered, right?"

Protect yourself against extended-warranty woes

On your last trip to the used-car dealership, chances are a salesperson tried to persuade you to buy an extended warranty just for “added peace of mind.” It may be sound advice. An extended warranty can help you avoid eye-popping repair bills. So can choosing a vehicle with a reliable track record and having a mechanic inspect the vehicle before you buy it. Before purchasing that extended warranty, check the fine print. And if you go away thinking you’ll never have to shell out another dollar for repairs, you’ll be in for a rude surprise.

“It’s virtually impossible to cover a car ‘bumper to bumper,'” notes Don Brennan, general sales and claims manager for Lubrico Warranty. “People need to understand which parts are exempt.” Bill Wereha, president of Coast to Coast Services, recalls an irate motorist who couldn’t believe a powertrain warranty didn’t cover power windows. A powertrain warranty, says Wereha, covers the engine and transmission, but not power windows, seats or locks. Some costly components, such as air conditioning, are also exempt. Extended warranties typically exclude tires, brake pads, rotors, lights, spark plugs, filters and exhaust systems, as they are normal wear-and-tear items.

Another clause that can trip you up is the exclusion against existing conditions. Extended warranties cover problems that occur after you buy the vehicle, not problems already present when the vehicle is sold. If a problem crops up shortly after your purchase, such as leaking seals, you might end up being bounced between the dealer and the warranty firm trying to get results. It’s another reason why a pre-purchase inspection can head off hassles.

Find out whether the warranty firm insists on using new or rebuilt parts for all repairs or just the cheapest. If your engine blows, for example, a rebuilt engine might cost $3,000, while a used one might cost $1,500. If the warranty limit per repair on your plan is $1,500, you could still be on the hook for $1,500. You may also find your warranty coverage void if you can’t provide proof of regular maintenance. If you’re late with an oil change or if you perform a do-it-yourself oil change, your coverage may be worthless. The same holds true if you continue to drive a vehicle that’s overheating or low on oil.

Prices of warranties vary depending on the term of the warranty, the age and model of the vehicle and the type of coverage. Some dealers will throw in a basic three- or six-month warranty (which often covers key components such as the engine and transmission) with the purchase price or you can pay $1,000 or more for a three-year plan. Since plans are typically sold at a markup, it can pay to haggle. But no matter how solid the warranty seems on paper, it’s only as good as the firm that backs it. Up to 44,000 Canadians were stuck with worthless warranties in 1989 when the bankrupt Guardall Group of Companies closed its doors. Despite this fiasco, only B.C., Alberta and Saskatchewan have provincial rules requiring warranties to be protected by insurers. So, before you buy, find out how long a firm has been in business and check its track record with your auto club or local Better Business Bureau. Some critics believe you’re better off socking away money in a savings account as a hedge against future repairs. However, Brennan believes the benefits of a warranty can’t always be measured in dollars and cents. “If someone tells me they had a useless warranty because they didn’t put in any claims, I always ask them, ‘Did it help you sleep better?'”

Maryanna Lewyckyj is consumer advocate for the Toronto Sun. She conducts car care seminars for women through her company, Autophobics Anonymous.