Most automobiles purchased new come with a factory warranty; a contract between you and the manufacturer that provides protection against various types of mechanical breakdowns.  The warranty's term is typically expressed in terms of months and miles, and expires whenever the sooner of the two limits are reached.  Without additional protection, upon expiration of the factory warranty, it becomes the vehicle owner's responsibility to pay for any mechanical breakdowns that may occur.  

Vehicle Protection Plans have existed now for several decades and were created to give vehicle owners peace-of-mind and protection against mechanical breakdowns that occur after the factory warranty expires.  These protection plans, also known as Vehicle Service Contracts, Extended Warranties, and Mechanical Breakdown Insurance, work similar in many ways to the original factory warranty.  They have a term, also expressed in months and miles of coverage, and provide varying degrees of protection depending upon the level of coverage chosen.  However, unlike the factory warranty, they often come with additional benefits, such as 24-hour roadside assistance, rental car reimbursement, and several others.  


The pricing of Vehicle Protection Plans is very specific, taking into account the vehicle's make and model, present vehicle age and mileage, and the original factory warranty.  As a vehicle gets older and increases in mileage, it becomes increasingly more difficult for Vehicle Protection Plan providers to predict the risk in providing a contract on these vehicles.  For vehicles that are still under factory warranty, this is actually the best time to purchase a protection plan, as the product provider knows that at least in the present moment, the vehicle is likely to be in good working condition.  As a rule, the sooner you buy your protection plan, the less you will pay for your contract, and the better the value you will receive.  


The Broker (sometimes referred to as a 'Marketer' or 'Retailer') is the company that sells you the protection plan.  You should be careful who you purchase your plan from, as many of the industry's greatest problems have been tied directly to unscrupulous marketers.  

Some Brokers aren't in it for the long haul - they go into business to make a quick buck, the founders take the money out of the company, and then they close up shop.  Steer clear of businesses that have scanty, marketing-ridden websites, or who won't provide you a free, instant quote.  Look for a strong BBB rating and business longevity.  

Some outfits are 'direct marketers' for a parent company.  Be careful, as simply due to the purpose of their existence, these companies are agents of the parent, not of the consumer.  

We believe the best type of Broker is one who independently represents multiple providers, who markets their products fairly and accurately, and who operates their business with the intention of having a viable business into the future.  


Normally several parties are involved in providing a Vehicle Protection Plan.  Upon purchase and acceptance of a Vehicle Protection Plan, the Provider is the company with whom you will have a contractual relationship.  They provide the plan, define its terms and conditions, and are responsible for paying claims.  

The Administrator is the company that handles the day-to-day operations on behalf of the Provider in servicing the Provider's active contracts.  When a contract owner takes his vehicle in for repair, the repair shop will call the Administrator for approval to perform the necessary work.  In most cases, the Provider and Administrator are the same company.  

The Insurer is the company that provides ultimate financial backing on issued contracts.  It is very important that you only purchase a contract backed by a stable and financially secure Insurer.  In the unlikely event that the Provider becomes unable to pay claims, The Insurer will provide the financial backing necessary to service your contract.  A.M. Best is a reputable company that rates the financial strength of insurers, and the following chart illustrates how they classify them:

Rating	Description
Secure Best's Ratings:
A++ and A+	Superior
A and A-	Excellent
B++ and B+	Very Good
Vulnerable Best's Ratings:
B and B-	Fair
C++ and C+	Marginal
C and C-	Weak
D	Poor
E	Under Regulatory Supervision
F	In Liquidation
S	Rating Suspended

Most protection plans are purchased at the dealership, usually because of the convenience of completing your transaction at the time of your vehicle purchase, or because the consumer didn't realize there are other options.  Unfortunately, this is often not the best choice.

Dealerships generally do not have a low, pre-established markup price, and will often times markup their contracts as much as they can.  This practice tends to diminish the value that the protection plan once had.  In some cases, contracts purchased at the dealership will require the consumer to get their vehicles repaired at that dealership.  A good protection plan will allow consumers to get their vehicles repaired at the shop of their choosing nationwide.  

Additionally, since the dealership typically adds points onto the financing programs they enroll the buyers into, the dealership will also earn interest on the premium paid for the Vehicle Protection Plan on top of their markup. In fact, the sale of F&I (Finance and Insurance) products have become so lucrative for many dealerships that it rivals what they make for selling the cars!


Vehicle Protection Plans are either Named Component (also known as Stated Component) coverage or Named Exclusion coverage.  Named Exclusion plans generally offer superior protection, and cover the repair of mechanical breakdowns provided the affected parts do not appear on an explicitly listed set of exclusions.  On the other hand, Named Component plans specifically list out each individual component that is covered under that plan, and anything that does not appear on that list is excluded.  Named Component plans are available in several different levels of coverage, ranging from 'power-train only' coverage to coverage that covers all major systems.  


Like the original factory warranty, Vehicle Protection Plans have both a time period and a number of miles that can be driven before coverage expires.  Coverage terminates whenever the sooner of the two is reached.  Normally, the time period (listed in months or years) is 'add-on', meaning that coverage begins on the date of purchase and continues for the number of months specified.  The mileage component can be 'add-on' (add the miles of coverage to your odometer to determine the mileage at which coverage expires) or may represent simply the odometer reading at which coverage will expire.  Be sure to always verify the actual date of expiration and odometer reading of expiration before purchasing a contract.  


Most providers want the repair shop to obtain prior authorization before repairs are made.  You should provide your repair shop with the 800 number as printed on your contract prior to commencing with repairs.  This will ensure things go as smoothly as possible.  Most providers also have an 'emergency claims procedure', which can be used if a mechanical breakdown occurs after hours.  Read the terms of the contract carefully, however, as normally these procedures limit the total cost of the repairs to a fixed dollar amount.


Most Vehicle Protection Plans include additional features and benefits, such as roadside assistance and rental car coverage.  These features are designed to minimize your distress in the event of a mechanical breakdown, in addition to paying for the actual repairs themselves.  Most protection plans are also transferable (usually with an administrative fee), and most offer nationwide coverage.  


Most Vehicle Protection Plans are fully cancellable with a 100% money-back guarantee for 30 days, and sometimes for as long as 60 days.  Thereafter, most are refundable to a certain percentage, usually determined by a pro-rata calculation.