Agents, Administrators and Insurers

It is important to understand that there is a difference between authorized agents (marketing & sales organizations), Administrators and insurance companies.

The authorized agent or marketing arm is the company selling the auto warranty. This can be a car dealer, a credit union, or a call center. CARCHEX is an authorized agent. They act like a broker, taking your unique situation and matching it with all of the reputable administrators that they work with to find you the best coverage at the best price.

An Administrator is the company that authorizes the repairs and pays your claims; they pay for the repair work to be done. They make sure that your claim is handled properly. Warranty Direct is an example where the Administrator and the marketing/sales arm are owned by the same company. While this is good in the sense that you will only have one company to deal with, what they have is what you get; they will not shop around to find the best deal for you.

The insurer is responsible for paying claims if the Administrator defaults or goes out of business. It is extremely important that you only deal with an Administrator that is fully insured by a good carrier.

Pros & Cons of Dealer Warranties

When you buy a new car the dealer will usually offer you an extended auto warranty. While purchasing an auto warranty from your car dealer is easy and convenient, it may not be the best thing to do. For starters, a dealer will not shop around for the best price and best coverage for you.

Here are some advantages and disadvantages to buying an extended auto warranty from your car dealer:

Dealer Advantages:

• It is often easy and convenient. You can usually purchase an extended auto warranty when you purchase your car.
• You know where to find the company.
• There is usually no 30-day or 1000-miles waiting period.

Dealer Disadvantages:

• Usually you can only get repairs done at the dealer. This can be a huge problem is your dealer goes out of business. After this past year with dealers closing left and right many people were left with worthless auto warranties.
• The price may not be fair. If you buy the extended auto warranty from the dealer when you buy your car you don't know if the price is fair or not. If you don't shop around chances are you will overpay.
• If you buy an extended auto warranty at the dealer, they may add it to your car loan — if you have a loan with a 15% APR then your auto warranty will also be 15% APR! Many authorized agents will let you finance your auto warranty at 0% APR. You don't have to do the math to figure out which is the better deal.

Why the lowest price isn't always the best deal

We've been trained to save money, to look for the cheapest path or product. Usually this works out pretty well. However, when it comes to auto warranties it's a bad idea. There is a lot more to an auto warranty than just the price. You need to look for:

• Price: Extended auto warranties that are too cheap should set off warning bells.
• Coverage: Will it cover everything you need?
• Company record: Does the company have a good grade with the BBB? Do they pay claims or deny them?
• Ability to pay claims: Does it have enough money to pay your claim? Is it insured by a reputable company? What is the administrator's financial situation?

The cheapest extended auto warranties probably won't be around to pay your claim when you need them. Just like Bernie Madoff, many of them use Ponzi Schemes — taking tomorrow's sales to pay for today's claims. If you do only one thing then before dealing with any company look them up on the Better Business Bureau.