Are warranties worth it?

Dear Tom and Ray:

We just picked up a new Fiat 500C, and we were pondering the lifetime warranty. Before the car hits 10,000 miles, we have to decide whether to buy it. The cost is around $3,000. Is something like this worth it? We would like to keep the car for 10-15 years. Cheers! — Karl

RAY: Generally speaking, extended warranties are not worth it. Why? Because if insurance companies didn’t take in more money from premiums — overall — than they spent on repairs, they would stop selling the things.

TOM: But that doesn’t mean it’s not worth it to you. Maybe you’re buying a car with unknown long-term reliability? Hint: You are.

RAY: Or maybe you’re someone who sleeps better knowing for certain that you’ll never get a call from the service manager telling you that the estimate for your new engine is $6,400.

TOM: But there are two variables to consider. The most important is the fine print.

RAY: What does this “lifetime warranty” actually cover? Is it a complete extension of the factory warranty? Is it just the powertrain? Does it cover body hardware and electrical issues? What, specifically, is excluded? “Wear items,” like brakes and shocks?

TOM: What’s the deductible? Are there conditions you have to meet to keep the warranty in force? For instance, do you have to get your car serviced regularly at the dealership? Do you have to keep written records of all of your services and oil changes?

RAY: If you don’t feel capable of doing a “close read” of the warranty’s fine print by yourself, then it’s worth paying an independent mechanic you trust to read it and go over it with you. You want to know what is and isn’t covered. Your mechanic also can talk to you about how often he sees the kinds of repairs that are covered, and how often he sees those that aren’t.

TOM: Once you know what kind of warranty you’re actually buying, then you can try to guess the likelihood that you’ll spend $3,000 on those kinds of repairs in the years that you own your car.

RAY: Also keep in mind that the price of the warranty is negotiable. Like most “parts,” an extended warranty is bought by the dealer at one price, and sold to you at a higher price — sometimes double. So you often can negotiate a lower price.

TOM: But don’t do anything until you understand what the warranty actually covers. It may be a great warranty, with a low deductible and very few exclusions or requirements. And it may help you sleep well for the next 15 years.

RAY: Or it may have more holes in it than my brother’s favorite underwear. And you may decide you’re better off buying a second Fiat 500C and just driving whichever one is working on a given day. Good luck, Karl.

Tom and Ray Magliozzi

Tom and Ray Magliozzi

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Tom and Ray Magliozzi

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