It is a common occurrence: people receive a mailing claiming that a car’s warranty is expired.
The mailer lists the make, model and year of the car, leading people to believe the mailing is an official notice from their manufacturer or dealer. Instead, these mailings are often solicitations from third party sellers of extended car warranties, not from the manufacturer or dealer. The warranties may contain dozens of coverage exclusions, resulting in denials of claims for needed repairs.
Beware of aggressive sales tactics
Sellers of extended car warranties—sometimes called motor vehicle service contracts—may use deceptive tactics to trick consumers into thinking they are buying a warranty extension from their manufacturer or coverage similar to a manufacturer’s warranty. Sellers may try to create a false sense of urgency by suggesting the offer is time-sensitive. Some companies try to scare potential customers into agreeing to buy a contract by describing expensive repairs, since over 60 percent of people in a recent survey said they didn’t have sufficient savings to fix their car if it broke down. But vehicle owners should not be rushed into spending thousands of dollars on a service contract without doing their homework first.
Are you already covered?
If people receive an offer for a service contract, they should first check their car’s paperwork, or contact their car’s dealership or manufacturer, to see if their warranty has actually expired or whether they already have a service contract from the dealer. Sellers of service contracts often try to sell something that vehicle owners actually don’t need.
Research the provider
Service contract companies must register with the Minnesota Department of Commerce and disclose whether an insurance company backs their service contracts. To avoid joining other consumers who have lost thousands of dollars and their repair coverage when a provider files for bankruptcy, people should find out whether a provider is registered in Minnesota and whether an insurance company backs the contract by checking with the department before buying: Minnesota Department of Commerce: Enforcement Division is located at 85 East Seventh Place, Suite 280, St. Paul, MN. Call 651-539-1600 or 800-657-3602 or visitmn.gov/commerce.
Read the fine print
Some motor vehicle service contracts contain so many loopholes and exclusions they are like Swiss cheese—i.e., full of holes. It can be difficult get a repair covered. Read the list of covered parts and exclusions to make sure the contract covers the items most people want it to cover. Some policies exclude coverage for repairs necessitated by normal operation of the vehicle—which could be almost anything. People should also look out for other potentially troublesome provisions, like maintenance and recordkeeping requirements, limits on the amount of hours and hourly rates for certain repairs, and prior authorization and diagnostic testing requirements.
Insist on reviewing the contract before buying, and never agree to pay for a contract sight unseen. Reputable companies will allow customers to read the contract before purchasing a warranty.