Discussion of Extended Warranty plans for used cars

This article has been prepared for the benefit of buyers of used cars to consider values of Extended Warranty plans. It may appear critical of one such plan that is probably fairly typical of those on offer. However, the intention was not to denigrate Extended Warranty plans but to show their (sometimes severe) limitations.

Let's have a look at a typical Australian Extended Warranty information:

The following items are covered by "GOLD WARRANTY" 1 & 3 YEAR CONTRACT

ENGINE - (Claim limit: up to A$1,500 per claim)

- Items covered: Engine block (if damaged by internal components), oil pump, pistons, piston rings, crankshaft and timing gears (not linked by chain or belt), crankshaft bearings, camshaft bearings, cylinder wristpins, camshaft, internal bushings, connecting rods, balance shaft and bearings, Cylinder head gaskets are covered only when repairs are carried out on the components covered in this subsection.

• It would appear that these items are not covered:
  - crankshaft if a timing chain or belt is fitted (as found in virtually all modern car engines)
  - cylinder head gaskets on their own, e.g. damaged by engine overheating
  - valve gear, e.g. damaged if the timing chain or belt breaks
  - cylinder heads (cracks or distortion by overheating)
  - crankshaft pulleys and dynamic balancers
  - crankshaft seals
  - ignition system (coils, HT leads, igniters etc.)
  - turbocharger, superchargers and/or intercoolers where fitted.

TRANSMISSION - (Claim limit: up to A$1,500 per claim)

- Items covered: The internal lubricated parts of both manual & automatic transmissions (specifically excluding driveshafts).

• It would appear that these items are not covered:
  - clutch (in manual transmission cars)
  - hydraulic actuators/valves and electric solenoid controls of automatic transmissions
  - gear selection mechanism
  - driveshaft universal joints
  - leakage of transmission oil or fluid (ATF)

DIFFERENTIAL - (Claim limit: up to A$1,500 per claim)

- Items covered: The internal lubricated parts (specifically excluding axles & wheel bearings).

• It would appear that these items are not covered:
  - well, the exclusions are clear
  - leakage of differential oil

COOLING SYSTEM - (Claim limit: up to A$750 per claim)

- Items covered: Water pump (impeller shaft, bearings & bushings), cooling fan.

• It would appear that these items are not covered:
  - radiator
  - thermostat
  - engine damage caused by overheating
  - leakage of coolant

ELECTRICAL - (Claim limit: up to A$750 per claim)

- Items covered: Alternator, starter motor, voltage regulator, windscreen wiper motor.

• It would appear that these items are not covered:
  - engine control computer (all modern engines have it, as they are EFI engines)
  - lighting system
  - audio system, incl. radio, cassette player, CD or DVD-player, TV and GPS systems, power antenna
  - ABS and traction (TRC) systems
  - cruise control
  - central and remote door locking systems
  - electric seats, windows and mirrors
  - electronic suspension system
  - electronic controllers (such as for the fuel pump, ride height, 4WS system)
  - electronic instruments (dash panels)
  - driver's controls - electric switchgear

STEERING SYSTEM - (Claim limit: up to A$750 per claim)

- Items covered: Rack & pinion, power steering pump, steering box & internal parts.

• It would appear that these items are not covered:
  - unserviceable tie rod ends/ball joints
  - excessive free-play in the steering
  - excessive caster and camber setting that can not sometimes be adjusted and may result in incorrect wheel alignment settings and "wobbly" steering
  - leaking seals in the P/S pump

BRAKING SYSTEM - (Claim limit: up to A$750 per claim)

- Items covered: Booster & brake callipers, master cylinder.

• It would appear that these items are not covered:
  - brake discs and drums
  - leaking drum brake actuators
  - ABS system
  - hand brake control cables and mechanism

AIR CONDITIONING - (Claim limit: up to A$750 per claim)

- Items covered: Condensor & evaporator, compressor (applies to factory fitted air only) (specifically excluding Gas, leakages, pipes & hoses, thermostat). Oil & Water leaks excluded in all of the above.

• It would appear that these items are not covered:
  - poor cooling performance
  - air-conditioning valves and mechanical/electrical/vacuum controls

SUSPENSION - not covered at all (such as leaking shock absorbers, TEMS, air-bags, active struts).

I note that some monetary limits per claim shown above seem unrealistically low, especially for the engine, transmission and electrical problems.

Of course there are the "ROYAL GOLD", "ROYAL EXTRA" and "ROYAL GOLD EXTRA" 1 & 3 YEAR CONTRACTS with increased limits but not substantially increased coverage available at higher costs, as shown below:

The "Royal Gold" warranty is identical coverage to the above except that the cover for the engine, gearbox and differential is increased from $1500 per claim to $2000 per claim and the other items are increased from $750 to $1000 per claim.

"GOLD EXTRA COVER & ROYAL EXTRA COVER" 12 MONTHS EXTRA COVER. For an extra $300 we can supply a 12 Months GOLD Extra Cover, or for an extra $500 we can supply a 12 Months ROYAL Extra Cover on the items listed below. Any component not listed below is not covered by the Warranty Contract.

Electric Solenoids and Computers - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL)

All electric ignition components - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL)

Fuel pump and injection systems - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL). (specifically excluding fuel injectors and injection service items).

All ABS braking systems - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL), specifically excluding brake pads or linings or service items. Cylinder heads, head gaskets, valves & lifters - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL, specifically excluding overheating or corrosion, drive shafts, CV Joints, and universals - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL), radiators - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL), specifically excluding any damage caused by collision or the result of road surface projectiles. Power window motors - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL), factory fitted turbochargers - up to $300 per claim (GOLD) & up to $500 per claim (ROYAL).

IMPORTANT

Some of the items shown as "apparently not covered" may be problems resulting from the owner's negligence in not servicing his/her vehicle properly or omissions and failures to take due precautions or simply not observe engine instruments when driving. Typical example of such a problem may be the engine overheating that may be caused by lack of maintenance (low level of coolant in the radiator) or failure of the water pump/drive belt or water hose that should have been noticed by observing the raising coolant temperature gauge before any engine damage was caused.

Other examples in the "not covered" category are items that may develop when the vehicle is in service, such as oil, coolant and A/C gas leaks or general wear and tear, such as worn brake discs/drums, clutch, shock absorbers and other items.

Another category of "not covered" problems may be the result of driver's accidents, such as the front wheel alignment problems.

Certainly everybody would agree that no insurer could reasonably cover such faults as they are within the control of vehicle owners. However, other "not covered" problems do not fall into the "driver induced" category, such as most electrical problems that normally just happen. Insurance cover of these would be desirable for the owner's peace of mind as they are often expensive to repair.

CONCLUSION

After perusing the above insurance contract a cynic might say that extended warranty seems to offer cover for items of equipment that rarely fail. How often does one experience a failure of the engine block if damaged by internal components or failed timing gears as against the more likely broken timing chain or belt that is not covered. Insurance cover for failures of now common turbochargers is only available at extra costs and to a fairly low level of compensation. Other more mundane and potentially expensive failures are excluded entirely, such as problems with electronic instruments and central locking or audio systems.

It is important to consider that all Extended Warranties require regular servicing at nominated time and distance intervals and these can be as short as 3 months/5000 km, e.g. for turbocharged cars. It is important to do simple sums, how much are these extra services going to cost throughout the whole extended warranty period plus the cost of the actual warranty cover and compare the total figure against the cover provided.

Quite likely there are other extended warranty plans that may differ widely in their benefits and exclusions. For making an informed decision about their real worth it is good not only to read but study the fine print.

Startrade Australia
March 2001