How an Auto Warranty Can Save You Thousands in Unexpected Repairs
Published: July 2nd, 2023
Owning a car can be exciting, but it can also be an expensive endeavor. One of the most significant expenses faced by car owners is for repairs after mechanical or electrical breakdowns, and those often come without warning. These unexpected costs may not be budgeted for in your finances, making them a source of a lot of annoyance and stress. This is where having an auto warranty comes in handy. Purchasing an extended auto warranty or vehicle service contract provides you coverage for specific repairs and services even after your manufacturer's warranty has expired. But how much of a difference can they make on your budget?
In this post, we will delve into everything you need to know about auto warranties, from what they are and how they work to the different types available and their benefits. We will also cover the costs involved, what is covered, and what isn't covered. We will compare those costs against the typical expenses you might face if you have to replace the parts covered in a service contract out of your own pocket. Additionally, we'll share a couple examples of how some of the best auto warranty providers on the market may meet your requirements. Read on to learn how an auto warranty can save you thousands in unexpected repairs.
What Is an Auto Warranty?
An auto warranty is an agreement between a car owner and a provider that covers specific repairs or replacements due to a breakdown. It generally does not cover many things like accidents, manufacturer's defects, or "wear and tear" damage. You would typically benefit from such a policy should your car break down because of an issue under the hood, or you need roadside assistance. Your plan would cover your costs for many of the consequent expenses, like towing to a repair shop and covering certain repair costs, minus your plan’s deductible. Some plans may even reimburse you for some costs incurred while you wait for your vehicle to be serviced, like renting a car.
These warranties can be bought from dealers, manufacturers, or third-party providers, and the coverage may vary based on the plan level chosen. For added context, it's useful to note that a manufacturer's warranty, also called a factory warranty, is typically included for free with the purchase of a new car. They typically cover major components of your car, such as the engine, transmission, and electrical system. The length of a manufacturer's warranty varies depending on the make and model of your car, but it may, for example, be 3 years or 36,000 miles of "bumper-to-bumper" coverage and 5 years or 60,000-miles of powertrain coverage.
An extended warranty provides an extension beyond the manufacturer's original warranty period. There are various types of auto warranties that vehicle owners can opt to purchase, and they can range from a basic plan that handles the core components of a vehicle's powertrain to a comprehensive plan that covers the vast majority of components. A powertrain warranty covers significant engine and transmission components. On the other hand, a bumper-to-bumper warranty typically covers most parts of the vehicle, although with a variety of exclusions and limitations. Keep in mind, however, that some warranty companies may have a claim filing waiting period of 30 days from the start of the contract, for example, or may stipulate a certain minimum mileage limit since signing before a claim can be approved.
Your coverage plan length can often be tailored to you, and we’ve seen them as low as 24 months to as high as 7 or 8 years, often with mileage limits. Whatever the length and coverage level, however, we believe that having an auto warranty can provide personal assurance and potentially save you significant costs on unexpected repairs.
This type of coverage is usually the focus of a basic or low-tier plan that a warranty provider may offer. The term powertrain refers to a group of interconnected parts in a vehicle that act as a unit to transmit power from the engine to the wheels, propelling it forward. The critical mechanical parts referred to here are your vehicle's engine, transmission, drive axles, driveshaft (including the transfer case), and their components. They are essential to your car's functioning and can be really expensive to replace.
These types of warranties typically last for a specific number of years or miles driven, whichever comes first. Depending on the warranty provider, you may have two or more plans that mainly cater to the powertrain. Companies could offer basic and premium versions of a powertrain warranty, where the differences can come from them taking some component coverage out of the basic plan or from adding some extra vehicle part coverage into the premium plan. An example of a stripped down plan is Everything Breaks' Standard Powertrain, which does not offer coverage for the transfer case and generally covers fewer components in the engine and transmission. On the other hand, a good example of a premium powertrain warranty that adds a lot of extra value is Endurance's Secure Plus plan. That policy offers a good amount of the main parts' components, and adds many other electrical, A/C, brakes, steering, and seals and gasket components.
Vehicle service contracts that are billed as bumper-to-bumper or comprehensive warranties provide overall coverage for almost all electrical and mechanical parts in your vehicle. Like a powertrain plan, these types of warranties can last for a specific number of years or miles driven, whichever comes first, but they may cover you for a smaller amount of miles driven than more basic plans. That mileage limit will differ depending on the provider.
Bumper-to-bumper coverage includes comprehensive protection against unexpected car repairs due to the failure of components in the powertrain as well as in the suspension, brakes, cooling, electrical (including "high-tech" parts), steering, A/C, fuel, audio, and emissions systems. The latter two might be offered coverage in bonus packages, as might be the case for hybrid/electric car parts and other specialty components.
A provider might offer an intermediate level of this type of coverage that, while not truly comprehensive, will still address a great majority of your technologically complex car's requirements. Some companies may bill their top comprehensive coverage as "exclusionary" because, unlike inclusionary warranties that list the items that are covered, exclusionary warranties list the items that are not covered. This type of warranty is typically more expensive than other types of warranties, but it provides the most complete coverage.
Typical Costs That a Warranty Might Cover
The costs of replacing the various different parts within a vehicle can vary widely. You will always have to account for the labor costs of the mechanic or service technician, depending on the complexity of the work, but the material costs take a lot into consideration too. Those considerations include how common a part it is, what type of vehicle it goes into, how technologically complex it is, and whether it is a new, used, or "remanufactured" part, among other factors. Note that there will be a further distinction between a remanufactured part that has been rebuilt to the original manufacturer's specifications and a certified remanufactured part, which is further inspected and certified by an independent third party to meet certain quality standards and which comes with its own warranty.
Many of the top vehicle service contract providers will provide a graphic on their site of the possible costs associated with replacing the bigger car parts. Each of those will base their number on estimates they've seen in their claims, and this may also take into account their specific cost allowances or limits. We have done some research on those costs, which takes into account the price differences between new and used items.
Powertrain replacement parts:
The engine, transmission, axles, and drivetrain will have many smaller components to consider, so this is more of a general list for the big ticket items. We simply want to share the most significant items and their costs here; labor costs are not included:
- Engine: A replacement engine can range between $2,000 and $10,000, though it may cost less or more. For example, a used engine for an older car can be as cheap as $400-$700, but it may not always be reliable. A remanufactured engine could cost between $2,500 and $4,500, and it tends towards the higher end of the range if it is a certified remanufactured part. Meanwhile, a new engine for a very recent car could set you back $6,000 to $10,000
- Transmission: A replacement may cost between $1,800 and $3,400 on average. A transmission can actually cost you as little as $300-$1,400 for a used part, and as little as $1,000 for a remanufactured part. They can reach $6,000 or more in price
- Axles: These may cost between $300 and $800 new, and as low as $50 used. Certified remanufactured axles can range between $200-$600
- Transfer case: The costs range between $200 and $2,000, depending on the age and condition of the part. You may expect to pay $200-$800 for a used part, and $800-$2,000 for a new one. A remanufactured transfer case's price lies between, $500-$1,500
Replacement parts outside of the powertrain:
If you have a middle-tier or comprehensive plan, you might be concerned with a wider list of parts failing. We won't go into exhaustive detail about the costs for each of those, but here are some examples:
- Electrical & A/C: The components here tend to be less costly than in the powertrain. You can pay as much as $800 to $1,500, as you would for a fuel injector, or $290-$1,000 for a starter. The majority of components we looked into tended to be under $600, though— $150-$300 for an ignition coil, $110-$140 for a fuse, $300-$600 for an A/C compressor, and up to $500 for an alternator
- Steering: Costs here are comparable to those in electrical. A steering column can set you back $500-$1,500, and so can the rack and pinion. A power steering pump may cost $280-$1,000, while a power steering reservoir tank or hose can cost $150-$300
- Suspension: We found that you may pay $1,000-$5,000 to replace your front and rear suspensions. If you have to replace the struts, you may pay $100-$350 per strut. Coil springs will cost $50-$150 per spring, and control arms will cost $100-$500 per arm. Keep in mind that labor costs could be significant here
- Brakes: The cost of replacing brake components, such as rotors, calipers, and brake lines, can range from $100-$1,000, or more. Some of these separate components will cost much less, of course, such as $30-$75 per rotor, $100-$200 per brake line, and over $130 per caliper. Keep in mind that many warranty plans may not cover the brake pads, linings, shoes, drums, or rotors
A qualified service technician's services will vary in price depending on the center as well as the complexity of the repair or replacement. Your local mechanic might give you discounts on their fees for standard or quick jobs, or because of the working relationship you built with them, but you will generally pay the relative value of the service. For instance, AAA repair shops have charged between $47 and $215 per hour in the past, but you may expect to pay professionals $75-$130 per hour, on average. So, if a service job has to take many hours or days and involve many professionals, the costs will grow.
For example, replacing an engine can take between 10 and 25 labor hours, depending on your car's make and model, and therefore may cost $1,000-$2,500 on average. A certified remanufactured engine worth $4,000 could end up costing you around $6000 installed. Labor costs for a transmission replacement can be less, between $500-$1,200, so a part priced over $2,000 can end up costing you closer to $3,000. Also, be prepared to pay a separate fee for a full inspection, among other expenses, when at your service shop. All of these are significant expenses, but we think they are necessary because you want these tasks done right!
Potential Savings Based on Levels of Auto Warranty
The savings you might enjoy will vary depending on the level of your coverage and the amount you pay for it, whether monthly or yearly. You will often have some extra benefits like rental car reimbursement, roadside assistance, and towing, even with the lowest tiered plans, and those will save you hundreds of dollars that you would otherwise pay out of pocket. But the true benefits lie in the repairs you're covered for after a mechanical or electrical breakdown, where you can potentially save thousands of dollars.
Let's say you opt for a plan that offers you basic protection for powertrain components, like the Secure plan at Endurance. That plan will offer you protection for your gas engine, transmission, drive axle assembly, transfer unit, and seals and gaskets. Your monthly costs may differ, but you’re likely to pay $69-$75/month for the basic plan. So for a 3-year or 36,000 miles policy on a five-year-old Toyota sedan with moderate mileage, you might pay upwards of $2,700.
For such a car, you might pay at least $2,500 each for a remanufactured or certified 6-cylinder engine and transmission, $300 each for two CV axles, and about $1,500 for a transfer case. The actual service costs will also include inspection and labor fees, which at $100/hour for 25-35 labor hours in total come out to $2,500-$3,500 for labor. If you add that to the total cost of replacing the above parts, it comes out to at least $9,600, minus the $100 deductible, which for four service occurrences would make the covered total $9,200, not including taxes. That would give you a total of at least $6,500 in savings for all repairs, provided you don't go over the mileage limit. Even if you just need to replace your engine, which takes 10 labor hours, you would come out on top by at least $700, not including taxes.
But if you opt for exclusionary comprehensive coverage, like that of CARCHEX's Titanium plan, would you still benefit? That plan is quote-based and costs for it will differ depending on the make and model, age, mileage, and location of the car. A six-year-old Ford SUV with moderate mileage, for a term of 5 years or 100,000 miles, would be quoted for $200-$205/month on an 18 month installment plan. The total cost would be $3,600-$3,690. Keep in mind that we are presenting an expensive example here, and your costs would be significantly less for a comparable sedan-- up to $50 less per monthly installment. For such a vehicle, your service and replacement costs can be higher. Based on our research, here are some sample costs that you can incur for a remanufactured or new part, including modest labor costs:
- 3.5L V6 engine- $3,395 (~$4,500 installed)
- Transmission- $3000 (~$4000 installed)
- Transfer case- $1,500 (~$2,000 installed)
- Suspension shock or strut- $569 (~$700 installed)
- Steering column- $329 (~$350-$400 installed) for column components, $800 (~$900 installed) for steering gearbox
- A/C compressor- $592 (~$700 installed)
- Engine control module- $650 (~$740 installed)
This list is by no means complete or exhaustive. This is especially true because the plan in question is an exclusionary one, meaning the contract covers most components and only lists the relative few that are excluded. That being said, if only the engine and its control module need to be replaced, you would save at least $1,450 on this plan after paying the $100 deductible and not accounting for taxes. But if all the above needs to be serviced over six repair occurrences, for example, you could stand to save $9,600 in repair costs, not including taxes. Your experience will likely differ, but the potential benefits are high.
An auto warranty can provide a lot of relief for the various repair expenses you can face, but no plan will cover everything. There are always some exceptions or limitations to a service contract that you need to be aware of. Many plans will not fully go into effect until 30 days after the date of signing, or after a certain minimum mileage is driven. Even when a plan is fully in effect, you will often have certain dollar limits on benefits like roadside assistance occurrences or rental car reimbursements.
Many providers will have repair limits as well, such as Endurance, which stipulates that your Secure or Secure Plus plan benefits cannot exceed $10,000 or your car's trade-in value, whichever is lower. To that effect, some providers may direct repair shops to use lower-priced parts, which may make the claims process take longer and cause you some inconvenience. Most providers will require you to follow a very specific procedure to get your repair claim processed, such as going to a certified center and having them initiate inspections, then filing the claim, or else they will deny it. To that effect, we recommend that you read your contract carefully, looking for all areas of exclusions and limitations, so that you have the most satisfying experience as a consumer.
Protect Yourself Now, Worry Less Later
We truly believe that purchasing an auto warranty can save you from unexpected and expensive repairs down the road. With various options available on the market, it is essential to compare costs, coverage, and providers before making a decision. If you make the right purchase decision for your specific vehicle's needs, you might find you will save quite a chunk of money on the service visits you will need.
Of course, it is vital to understand what is covered and what is not covered under the warranty before signing up for one. CarShield, Endurance, and CARCHEX are some of the best auto warranty providers on the market, but there are many others out there that may suit your needs well. Make sure to do your comparison research, then read our reviews to decide on the one that will serve your interests best.