How Does an Extended Warranty Work?

What is an Extended Warranty?

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Extended warranties are agreements between an owner of a product and the company that is providing the warranty. The company promises to pay for various repairs according to the contract designated within a particular period. The owner of the product is protected from unexpected costs if a mechanical breakdown occurs.
When it comes to automobiles, for example, one mechanical breakdown can actually cost equal to or more than the cost of the warranty. Therefore, many people feel that it is wise to invest in an extended warranty. There are various levels of coverage with extended warranties. The coverage will differ, depending on the company.

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An automobile purchase is a large investment, and having an extended warranty can be just as important. Common motorized maintenance can literally run into thousands of dollars in repair costs. The owner has peace of mind when she is protected by an extended warranty, especially if she purchases a used vehicle.
An extended warranty can actually cover the vehicle for the life of the vehicle. With many extended automobile warranties, there are other features such as towing benefits, car rental discounts and lost key and lockout services. Also, some extended warranties are transferable when the automobile is sold to a new owner.
Extended automobile warranties generally extend to all covered vehicle components, appropriate fluids and labor charges plus taxes. However, there may also be a deductible required before service can be administered on the automobile.

You need to know whether the warranty will cover wear and tear on the product as well as a breakdown. Some product parts may need to be replaced due to wear and tear over a specific period. A "wear-and-tear" warranty generally extends coverage to parts that have worn down and are in need of replacement.

When a part fails and needs repair or replacement, the extended warranty company requires that the consumer either send the product through the mail to be repaired or replaced or to take the product into a repair facility to be repaired or replaced. The customer must show her service agreement when she arrives at the repair facility. The product is then diagnosed, and the repair facility is contacted to obtain authorization to perform the necessary repairs or provide a replacement.
If a deductible is required, it will have to be paid before service is provided. Generally, claims are paid directly to the repair facility over the phone with a corporate credit card so that the customer does not have to worry about paying herself and then getting reimbursed. However, depending on the company, some companies do require that the customer pay for the repairs herself and then send the receipt (proof of payment) via mail and wait for reimbursement. This can be frustrating because the customer may not have the money to pay for repairs, and often it can be months before she is reimbursed. Ideally, it is better to have a warranty that will pay the repair facility upfront without any costs to you other than maybe the deductible, and especially when repair costs are very expensive.

When purchasing an extended warranty plan, be sure that the store or automobile dealership forwards the payment if a third-party administrator is involved in the transaction. It is also vital to get a written confirmation of your new warranty service. Some consumers have discovered in their time of need that they did not have coverage because the payment was never forwarded to the proper party.