Car Repair Insurance: Is Coverage for Breakdowns Worth It?
Car repair insurance, or mechanical breakdown coverage, is available from a few insurance companies such as GEICO and Mercury Insurance. Adding this coverage to your car insurance can save you from bearing the cost of major repairs like a blown engine or transmission on your own. But for most people it’s just not a good value.
So that you can decide for yourself, we summarize below how this insurance works. We’ll also offer some better alternatives that can help protect you from expensive car repairs.
Car repair insurance is similar to extended warranties or service contracts sold by auto manufacturers and dealers. It covers the same kinds of things, which means it will pay to fix mechanical problems after your car’s new warranty has expired.
Not all insurance companies offer this coverage, and when they do, the policies typically have important limitations:
- Act quickly – You must begin your coverage when the car is fairly new. GEICO, for example, will only allow you to sign up if your car less than 15 months old and has fewer than 15,000 miles on the odometer. Mercury requires that you sign up within 30 days of the expiration of your original warranty, and prices increase the closer you get to that expiration.
- Coverage ends as your car ages – You can’t keep the coverage as your car gets older and more likely to break down. In general you’ll need to drop this coverage after about 7 years or 100,000 miles.
Car repair insurance generally comes with a $100 - $250 deductible, so many minor repairs won’t be covered.
When your car needs a major repair, you will first contact your insurance company to file a claim – and to get pre-authorization. Then you’ll be able to go to any authorized repair shop you choose, and your insurance company will handle the payment of any costs over your deductible.
While they offer similar protection, car repair insurance and extended warranties have important differences you should understand before buying. The table below summarizes some of the important contrasts.
|Car Repair Insurance||Extended Warranties|
|How You Pay||Payments made over time||Pay in full up front, but cost can be included in auto financing|
|Refundable||Not applicable||Prorated refunds are generally available|
|Claims Process||You must file a claim with your insurance company before taking car in for repairs||No need to file claim|
|Choice of Mechanic||Repairs can be made at any licensed repair shop (with prior authorization)||May be limited to only certain car dealers or repair shops|
|Scope of coverage||Usually provides bumper-to-bumper coverage with some exclusions||A range of plans offered from bumper-to-bumper with maintenance included, to coverage of only certain systems|
|Assurance of Coverage||Insurance companies are regulated to guarantee solvency and minimum service quality||Unless purchased from manufacturer, burden falls on consumers to choose a reputable company|
|Eligibility||Must be purchased when car is fairly new||Can be purchased at any time before the new-car warranty expires|
Some people find car repair insurance to be valuable because it removes worries about big expenses. Plus, it provides added piece of mind for those who don’t know much about cars and who worry about haggling over repair costs.
But for most people, this type of insurance is not a good value. Consider the following two factors:
- Overlap of coverage – Depending on your insurer, coverage either must commence when your car is fairly new or, even if it is available later, your premiums will rise if you sign up later. In most cases this means you’ll be paying premiums while your car is still covered by the manufacturer’s new car warranty. But during this period, the new car warranty will pay the cost of auto repairs, meaning you get no benefit from the additional coverage.
- When you need it – Today’s cars tend to be remarkably reliable in their first 7 years and 100,000 miles, so failure of major systems like engines and transmissions are rare for newer cars unless maintenance has been neglected. When the car is older and more likely to need expensive repairs, mechanical breakdown coverage will no longer be available.
There’s a better alternative. Instead of purchasing insurance coverage, consider taking these steps:
- Research – Start by considering reliability records before purchasing your car. You can compare different models’ reliability on websites like Consumer Reports and TrueDelta.
- Maintenance – Then make sure to keep up with the manufacturer’s recommended maintenance schedule. This is by far the best insurance against early catastrophe.
- Trusted mechanic – Ask friends to recommend a local mechanic or check online reviews, so that you have someone you trust when repairs and maintenance are needed.
- Save the money – Finally, take the money you would have spent on insurance or an extended service contract and add it to your emergency fund. That will give you protection from unexpected expenses of the automotive and non-automotive variety
- Compare with extended warranties – If you really want someone else to shoulder the risk of major car repairs, you’ll probably find a better deal by choosing an extended warranty, especially if you choose one from your car’s manufacturer. Price shop and keep in mind that the cost of an extended warranty is negotiable.
One final tip: If you do choose to purchase car repair insurance, make sure you know what you’re buying. In some cases, instead of offering insurance coverage for car repairs, some insurers resell extended service products offered by other companies, which means the coverage will not come from that insurer.
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