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Mechanical breakdown insurance vs. extended warranty: Which is better?

It's a budget buster for many drivers: Your car has broken down suddenly and needs expensive repairs. Worse, the manufacturer's warranty for the car has expired, and you're on the hook for the cost.

auto insurance mechanical breakdown

If you fear having to shell out money for unexpected car repairs, there are two products you can buy that can shield you from pricey auto repair bills: extended warranties and mechanical breakdown insurance. However, some experts aren't sold on the need for either product.

Here's a quick look at the differences between extended warranties and mechanical breakdown insurance.

Extended warranties:

• Generally are sold -- and sometimes backed -- by car dealerships. Repairs often must be done by a dealership or its approved repair shop.

• Usually must be paid totally in a lump sum.

• Are not insurance, so are not subject to state insurance laws.

• May be purchased for older used cars but aren’t exclusively for these types of cars.

• Often can't be canceled for a refund.

• May be transferable to another owner.

Mechanical breakdown insurance:

• Can be purchased from car dealerships, through third parties such as credit unions or independent insurance brokers, or directly from auto insurance companies. Repairs can be done by any licensed repair shop.

• May be paid in installments.

• Is an insurance product regulated by state insurance laws; the product is backed by the insurer.

• Is typically issued for new or nearly new cars.

• Can be canceled. The premiums can be refunded if they were paid in advance.

• Can be transferred to a new owner.

Various factors determine your rates

What will a mechanical breakdown policy cost you? Rates vary widely, says David Scott, vice president of Mercury Select Management Co. Four key factors determine your rate: the size of your deductible; the make, model and age of your vehicle; how many years of coverage you want; and the level of coverage you pick.

Mechanical breakdown insurance offerings include basic drive-train-only policies to top-level coverage where the few excluded items are listed in the plan. Scott says deluxe policies even may provide a rental car and pay your hotel bill if your car breaks down when you're out of town.

You might pay $1,000 or less for a short-term, basic policy on a less expensive car, Scott says, while getting a top-of-the-line, four-year plan for a new Mercedes could cost $10,000 or more. He notes that the average Mercedes claim exceeds $1,200.

Do you really need either of these?

Before you delve too deep into either of these products, know that consumer advocates discourage drivers from buying either extended warranties or mechanical breakdown insurance. Rosemary Shahan, president at advocacy group Consumers for Auto Reliability and Safety, says it's thriftier to simply buy a car with an excellent reliability record. She says manufacturer's warranties usually are adequate to cover new cars.

For a used-car purchase, have the vehicle thoroughly checked by a reliable mechanic. Shahan recently did this herself when buying a used Subaru, and it cost just $96. She recommends checking the Mechanics Files maintained by the "Car Talk" radio show for a referral to a trustworthy shop near you. If you're buying a used car from a dealership, Shahan says, you still should have an independent mechanic inspect the car.

"This is the most important $100 you'll spend on the entire transaction," she says.

Shahan warns of numerous instances when dealer-issued extended warranties turned out to be worthless. When the dealer issues an extended warranty, it is supposed to be backed by an insurance product that the dealer buys separately. But unscrupulous dealers may simply pocket your money, Shahan says.

"They sell the warranties, take your money and then never activate the policy," she says. "Then you've paid in advance to have these repairs covered and you find out you have no policy when you need it."

Of the two products, Shahan notes that mechanical breakdown insurance is the more reliable one, as it is backed by a major insurer rather than an individual auto dealership.

Mercury's Scott recommends checking to make sure your insurer is in solid financial shape. The insurer should have no less than an A- rating from credit-rating agency A.M. Best, he says.

Can I get MBI for my car?

If you're interested in mechanical breakdown insurance, the first step is to determine whether an insurer would be willing to sell it for your vehicle. Many major auto insurance companies offer mechanical breakdown policies, including Mercury, Geico, USAA and 21st Century, and each company has its own set of rules.

For instance, USAA offers one plan that accepts vehicles up to 8 years old and with up to 75,000 miles on the odometer. By contrast, Mercury's plans go up to 7 years old or 100,000 miles.

Geico's plan is only for Geico auto insurance customers, and only for cars with fewer than 15,000 miles that are less than 15 months old.

One thing all mechanical breakdown policies have in common: You must sign up for the policy before your manufacturer's warranty expires.


  • Dan said Reply

    most of this information is false. most if not all extended coverages are
    transferable and pro rated refundable. and they are also not always have to
    be paid in a lump sum. and if you set up coverage at a dealership or credit union it is still through a 3rd party administrator that is backed.
    So a more accurate review:
    does not have to be paid in full
    can be transfered to new owner
    can be pro rated refundable if they choose to cancel at anytime
    repairs can be done at any liscense repair shop nation wide
    and all extended warranties are adminstrated by the VPA and AM Best.
    I suggest more extensive research and maybe re-typing the article

    maybe use more than one source to get an un biased opinion

  • Curtis Phillips said Reply

    Did the author of the article even review any of the programs mentioned in the article? FACT: I recently purchased a mechanical breakdown policy on a seven year old car that the manufacturer's warranty had expired 4 years ago!

  • LarryWa said Reply

    The mechanical breakdown insurance that we purchased from Geico when we bought our new car cost a fraction of the price of the extended warranty. Originally, the policies were up to 100,000 miles with unlimited years, they recently limited it to 100,000 miles and 7 years.

    Not long ago we had a rush hour breakdown of my wife's 2010 Ford Escape. we called Geico. They towed the car to the dealership, paid for the rental car which was on site and gave us the choice of taking it anywhere (We chose the dealer). When combined with the comprehensive insurance, your car is covered from virtually any system failure, even if it includes your 4 year old dumping her drink into your ridiculously expensive electronic packages that are on all of the new cars. For us, we paid a $250 deductible and the insurance company takes care of everything for us, including dealing with the repair representative at the dealership.
    That coverage costs us around $6 a month and fixes everything that the most expensive extended 100,000 mile, 7 year warranty will cover and more.

    So, draw your own conclusions. Personally, I recommend dependable cars that don't need extended warranties. My 2010 Ford Escape with 63,000 miles has been towed to the dealership 4 times due to engineering related failures, my favorite being when a relatively new battery simply exploded while starting the car shortly after the dealership fixed one of the serious recalls for that model. I have owned 3 Toyotas and not one was ever towed to a dealership.

    I want to support American jobs and try to buy American but our experiences with Chevrolet was bad, Ford horrible, and Toyota, which I don't want to buy, have all had perfect track records. Volkswagen, Volvo, and Toyota can not be beat unless you enjoy spending time sitting in the waiting room at your local dealership and spending time and money that is totally avoidable.

    Just one man's very sad but true opinion.



  • ted said Reply

    Extended warranties:

    • Generally are sold -- and backed -- by car dealerships. Repairs often must be done by a dealership or its approved repair shop.

    FALSE. These aren't backed by car dealerships. They are backed by insurance companies or a risk retention group. This article is stupid.

    • Korrena said Reply

      Hi Ted,

      You're right in that extended warranties aren't generally backed by dealerships so I changed the wording to reflect this. However, there are warranties sold out there that are backed by car dealerships (as mentioned in this article -

      Thanks for commenting!
      Korrena -

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