Administrator:
The company that authorizes and pays the repair facility for repair work to your vehicle. The administrator works with the repair facility to make sure your claim is handled properly. As they are the company that pays your claim, their financial strength is the most important factor in choosing a warranty company.

All Wheel Drive (AWD)
All four wheels are driven by the engine. AWD systems are superior to 4WD because they can be used under any road conditions. AWD systems use a center differential to allow the front and rear wheels to rotate at different speeds. AWD provides better traction than front or rear-wheel drive.

Auto Warranty:
See Extended warranty.

Basic Warranty:
The specific terms established by each manufacturer to repair vehicles through a specified mileage and/or time period. All factory installed and many dealer installed parts are covered under this warranty.

Better Business Bureau (BBB):
The Better Business Bureau (BBB) has long been a means consumers have used to check out a company. In order to participate in the BBB Online Reliability Program, a company must have a satisfactory complaint handling record, agree to participate in the BBB’s advertising self-regulation program, agree to abide by the BBB Code of Online Business Practices, and agree to dispute resolution with the BBB. Most of the companies who participate in this program value their standing in the BBB, and tend to do a better job at handling complaints

Bumper-to-Bumper Warranty:
The most comprehensive warranty you can buy. It will cover all parts of your vehicle and will only exclude a small list. Because the coverage is so comprehensive, it will only list the few parts not covered. Most similar to the manufacturer’s warranty.

Certified Car:
Many cars sold used or off lease are certified by the manufacturer. This means they have undergone a quality inspection process prior to sale. Often, a limited powertrain warranty is attached to them. Most do not have extended or bumper-to-bumper warranties. There is no industry standard for certification.

Claims Reserve Accounts:
An insured account that the administrator will maintain to pay future claims.

Consumable Items:
Parts such as tires, batteries, clutch plates and wiper blades that are generally not covered under any warranty.

Corrosion Warranty:
Covers rust through perforation on sheet metal. Offered as original warranty on new vehicles. Extended warranties do not cover corrosion.

Deductible:
The amount that you must pay the repair facility for work when vehicle is being repaired. Many plans are offered with a zero deductible option.

Drive Train:
The components that transmit the flow of power from the engine to the wheels. The components include the clutch, transmission, driveshafts (or axle shafts in front wheel drive), U-joints and differential.

Administrator
The Administrator is the company who is responsible for paying claims. This company is often not the company selling you the warranty. It is important to check into the Administrator’s background and financial history. Check their Better Business Bureau record and run searches on Yahoo.com to see what consumers are saying about them. Ask them how long they have been in business. Find out if they sell coverage only on the Internet or also provide coverages to car dealers, banks, credit unions and manufacturers. Many consumer oriented web sites recommend purchasing directly from the Administrator.

Failure / Mechanical Breakdown
These terms will define what types of claims a warranty will cover. Better plans will cover wear-and-tear failures. Look for contracts that use the term Failure and define it as covering parts that break as well as those that wear out.

Lesser coverages will only cover mechanical breakdowns. You will often find clauses such as, “the gradual reduction in operating performance is not covered” in these types of contracts. While their cost will often be lower, so too is the coverage they offer.

What is Wear and Tear coverage?
Wear and tear protection is the highest level of coverage one can purchase. It is a much broader level of coverage than the mechanical breakdown only plans offered elsewhere. Many extended warranties define “mechanical breakdown” as a defect in parts and workmanship as supplied by the manufacturer, or a defect that makes the part unable to perform the function for which it was designed. Often, they will state that the gradual reduction in operating performance (wear-and-tear) is not covered. Service contracts that exclude wear and tear will not cover repairs needed because a part’s performance has gradually deteriorated because of normal wear and tear, unless a mechanical breakdown has occurred.

The more miles on a car when a repair becomes necessary, the more likely it is that the repair will be needed because a part wore out, rather than because the part broke due to poor manufacturing. Before buying an extended warranty, you should carefully review what is covered and not covered to see whether wear and tear claims are excluded from coverage. That way, if it is not clear whether a repair is needed due to a manufacturing defect or simple wear and tear, it is more likely that the service contract company will pay for the repair. It is a mistake to assume that a repair agreement will cover every repair your car may need.

Where Can Repairs be Made? How Are Claims Paid?
Better extended warranties will allow you to choose the dealer or repair facility that performs repairs on your car. Some warranties will require that you only use the dealer where the coverage was purchased or locations that participate in their program. Many extended warranties will pay your dealer or repair facility for repairs over the phone via their corporate credit card while others will require that you pay for repairs and wait to be reimbursed.

What is Not Covered?
All extended warranties will have a list of Exclusions or things that are not covered under the warranty contract. Many of the exclusions are standard across warranty agreements but there are some that one should be aware of. Many common breakdowns can be hidden in the exclusions section of a warranty contract.

Here are some common exclusions you should be on the look out for:

-Damage caused by overheating
-You must maintain your vehicle according to the severe requirements of your manufacturer (that can double your maintenance costs)
-Burned/worn valves/guides, valve grinding, worn rings and burned pistons are not covered. (These are classic wear and tear failures)
-Any covered part that has not failed. This includes seepage of seals and gaskets.
-The gradual reduction in operating performance is not covered.
It is recommended that you read a warranty contract prior to purchasing your coverage. Don’t accept a brochure as it will only provide general information. Reputable companies will provide you with copies of the contract to review prior to purchasing. Many of them will publish their contracts on their web sites.

Warranty Administrator – This is the company that actually issues the warranty and is responsible for paying any claims. This is the company that should come under the closest scrutiny by consumers. Buying coverage direct from an administrator offers the most security as your money goes directly to the company responsible for fulfilling the obligations under the warranty contract. You will also be able to obtain the same coverage they sell through car dealers and avoid the car dealer’s markup. Administrators will offer you pre-sale counseling and after sale support.

There are many warranty administrators (national and regional) with varying business models. You should select a company that offers their coverage through many different channels and not just the Internet. Like insurance companies, the larger the pool of warranty holders, the more likely the company is financially stable and has adequate funds to pay future claims.

Regional warranty administrators tend to be small and have a smaller base of customers. National warranty administrators will offer coverage through car dealers, financial institutions (banks, credit unions) and may even handle warranty programs for manufacturers. With a larger, more diverse customer base, these companies are more financially sound. When a warranty administrator handles coverage for banks, credit unions and manufacturers, you can bet those companies did a lot of research before selecting a warranty partner.

More and more states are regulating the sale of extended warranties. Larger states like California, Florida and New York have licensing requirements and have done the homework for you. If a company is licensed in all of these states, that is a good indication of a stable company and one dedicated to compliance.

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Internet Only Warranty Companies – Based on our 14 years of selling coverage direct to consumers on the Internet (and 27+ years through car dealers, banks and credit unions), we have seen companies with this business model come and go. While the Internet allows consumers to buy products at more affordable prices than traditional selling channels, companies that only do business on the Internet present a risky business model.

Internet only companies are loosely regulated and some are not regulated at all. As they do not sell through car dealers or other channels, they are able to bypass the regulatory requirements that more and more states are implementing to protect consumers. These regulatory requirements most often deal with the company’s financial health.

By only selling warranties on the Internet, these companies are not able to amass a large customer base and often are not able to set aside appropriate funds to pay future claims. They take in money on Monday to pay claims on Tuesday. Couple this with a lack of regulatory over-sight and you have a recipe for disaster.

Questions you should be asking…

How long has the warranty administrator been in business?
Have they been around long enough to have been through several claims cycles?
Do they set aside adequate funds to pay future claims?
Do you sell your products only on the Internet?
When you type their company name into a search engine, what are their customers saying about them?
Are they members of the Better Business Bureau?
How many complaints do they have on file?
Are they members of WebAssured.com?
Are they Dun & Bradstreet verified?
Are they able to do business in all 50 states?
Are they recommended by reliable, trusted automotive web sites?
Do they have a formal complaint resolution process in their contract?