- The Washington Times - Friday, December 24, 2004

“We sell peace of mind,” said Bob Rehn, manager of Ford’s extended service plan programs. Extended service contracts are designed for motorists whose new vehicle warranties are about to expire. These contracts help car owners avoid the threat of major bills for repairing aging engines, transmissions and other systems that have been driven past conventional warranty limits.

Typically, new cars come with warranties that provide coverage ranging from three to four years and from 36,000 to 50,000 miles. Chrysler offers a seven-year, 70,000-mile warranty, and some Korean makers offer an astonishing 10-year, 100,000-mile warranty. Regardless of the original warranty limits, you can buy extended coverage designed to avoid the financial calamity that might come from having to replace an engine or transmission.

The average engine repair cost last year was $3,000, said Dean Hughes, customer service manager for webdirectwarranty.com, a company that sells extended service warranties both online and through mail order. “We are a sales brokerage, not an insurer,” Mr. Hughes said.

Whether you should buy an extended warranty depends on your tolerance for risk and the trade-in cycle you settle on for your vehicle.

If you plan to trade in a purchased or leased vehicle before the original warranty expires, then you definitely do not need an extended service contract. However, if you desire to run your vehicle for up to 100,000 miles, you should consider an extended warranty.

You can purchase coverage that will pay for the most expensive repairs and service your car might require. There are a variety of plans available for various mileage limits above the original warranty.

Your dealer can sell these optional contracts on most new vehicles and many pre-owned ones also. Mr. Hughes said if you decide this coverage is right for you, it should be purchased before your original warranty expires. The right time is probably at least one month before the expiration date because many extended service contracts have a 30-day delayed effective date clause before they kick in.

Mr. Hughes claims that contracts purchased through the Internet, such as those from his company, are generally less expensive than those you can buy from a dealer. But he cautions that you need to do some research before you buy.

The company providing the service should have a good rating with AM Best Co., an insurance rating company that is the recognized agency for accurate reports on the health of insurance companies. Web Direct Warranty extended service contracts are underwritten by Lyndon Property Insurance Co. That company is rated A-, or excellent, by AM Best. Obviously you don’t want to buy coverage from a company that either doesn’t pay or is difficult to collect from.

Steve Gordon, national product development manager for Toyota Motor Sales USA, said his company offers three levels of extended service contracts for Lexus and Toyota brands. Extended coverage ranges from 60,000 to 100,000 miles, depending on the contract selected. Toyota’s platinum plan covers almost everything but wear items, Mr. Gordon said.

A seven-year, 100,000-mile platinum plan for a Toyota can range up to more than $2,000 in price, he said.

A three-year, 50,000-mile plan with zero deductible can cost as little as $675. Overall cost depends on the price of the vehicle, the amount of deductible and the extent of coverage. For instance, you can get just powertrain coverage for engine and transmission, or complete bumper-to-bumper coverage.

Mr. Gordon said that plans offered by automakers or outside insurance companies have a more liberal policy for paying off claims for warranty work. Plans that are backed by dealers alone may present more difficulty in getting warranty claims approved.

After all, any payouts from these plans come from the dealer’s bottom line exclusively.

He said that Toyota has a liberal policy for adjusting claims. In addition, the level of proof required is not any more onerous than for standard warranties. “We typically pay off claims when others won’t,” he said.

Proof of maintenance, such as oil changes and other required servicing, isn’t generally required unless the repair shop finds signs of vehicle neglect. An instance of this evidence might be the presence of oil sludge in the crankcase, an indication that oil changes were not performed as required.

While extended service contracts are popular with many risk averse motorists, a minority of vehicle owners purchase them. Mr. Gordon said that 27 percent of Toyota and Lexus buyers opt for extended service contracts.

Other providers of this coverage estimate that as many as one-third of all vehicle owners purchase extended contracts.

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