How important is an extended warranty

Perhaps you remember the days when car companies offered nothing more than a 12-month/20,000km warranty on a new car?

Those days are long gone, with even the most unlikely car companies now providing passenger-car buyers the peace of mind that goes with unlimited kilometres and three or more years’ coverage...

But even in an era of volume-selling brands committing to multiple-year warranties – up to five or seven years, and even longer for powertrains (engines, transmissions and final-drive components) – there's still a place for car buyers to consider the purchase of an extended warranty.

It's important to arrange the right sort of cover, however. If possible, choose a level of cover that effectively extends the manufacturer’s warranty or goes even further by subsidising towing and rental car costs when the inevitable happens.

What is an extended warranty?
Any warranty that covers a vehicle for unforeseeable defects beyond the expiry of the original manufacturer's warranty is an extended warranty.

Like the standard factory warranty for a new car purchase, an extended warranty (some people call it extended warranty insurance) covers the cost of repairing faults (usually electrical or mechanical) in a car during the period the extended warranty is valid.

Who provides extended warranties?
Companies offering consumers extended warranty coverage are frequently traditional insurers. An extended warranty is like life insurance for your car, so it's natural that insurance companies are also in this sector of the market.

Where can I buy an extended warranty?
Most commonly, extended warranty cover is sold by sales staff at a dealership when you’re purchasing a new or used car or via the finance broker. Online warranty specialists have entered the market in recent times and have been able to provide competition, whilst also allowing consumers to purchase at their convenience without the pressure tactics sometimes experienced in a dealership.

Who should buy an extended warranty?
Extended warranties can be applied to both new and used vehicles. Buyers who plan to keep their car well beyond the expiry of the manufacturer's warranty may find extended-warranty cover appealing. This is particularly the case if the car purchased is known to be expensive to repair.

Used car buyers can benefit from purchasing an extended warranty. If the car they're considering is beyond the expiry of its manufacturer's warranty, or has little time remaining, an extended warranty would be worth the outlay for the security of knowing someone else will pick up the bill for the failure of a big-ticket item under the bonnet.

What does an extended warranty cover?
At the lower end of the range, extended warranties will generally cover selected parts of the engine, transmission and differential, and for repair costs up to $500 or $1,000. At the other end of the scale, extended warranties are available to cover the same components the manufacturer covered when the car was new. These warranties may cover repair costs up to the market value of the car – good to know if you own an $80,000 prestige car.

As with a standard factory warranty, an extended warranty won’t cover ‘normal wear and tear’ of the car – warranties are for mechanical failure, not the gradual degradation of performance that happens over the years with all cars.

They also won’t cover official recalls which will be the responsibility of the manufacturer even after the warranty period has ended. Other exclusions relate to criminal acts (the old sugar in the petrol tank routine), cars that partake in motorsport or used for business such as an Uber vehicle, or issues relating to neglect (i.e. not servicing the car).

What restrictions apply to extended warranties?
The older a car is, or the further it has travelled over the course of its working life, the less likely it is that a provider will cover the car with an extended warranty.

There are also likely to be limits placed on the sum of money that can be claimed for repairs.

To be sure of the coverage offered by the provider for your extended-warranty policy, always check the applicable product disclosure statement (PDS).

How long do extended warranties last?
There's a point in any car's life beyond which repairs become uneconomical, but long before that the extended warranty insurer will have bailed out. Periods of insurance vary from company to company, and often depend on the type of vehicle covered.

How much do extended warranties cost?
Prices can vary, depending on the type of car to be covered, the level of coverage and the length of policy – up to five years.

Can I cancel my warranty if I crash the car or it's stolen?
The conditions under which an extended warranty can be cancelled or transferred vary from provider to provider. The amount of refund (if any) also varies; some companies may choose to withhold a cancellation fee.

In most cases, customers should be able to cancel the extended warranty if the car is sold, crashed or stolen. The warranty is transferable to a new owner, providing the seller an opportunity to negotiate a slightly higher price with the buyer or make their car stand out from the crowd.

How do I cancel my extended warranty?
Some insurers may require a request for cancellation be lodged in writing, but many will accept the request in person, by phone or email. The Product Disclosure Statement should outline what is required.

How do I transfer my extended warranty?
In cases where the warranty provider allows for the transfer of a warranty, they will require the new owner's full identification and contact details. The new owner may be requested to provide more personal information before the insurer accepts the risk and transfers the cover. The process is generally simple but may require the payment of a small transfer fee. Whether a policy can be transferred to a new owner is a key question you should ask when choosing a warranty provider.

I have a complaint about my extended warranty. Where do I go?
If you have a complaint about relating to an extended warranty your first port of call should always be with the warranty provider itself. All reputable providers have documented complaints handling procedures which usually involve a Dispute Resolution Panel, or similar.

If you are not satisfied with the outcome then you can escalate the issue externally to the Financial Ombudsman Service (FOS) – 1800 367 287 or the website. The FOS provides an independent service which will investigate your complaint and provide a ruling at no cost to you.

Do I really need an extended warranty?

As one final point to bear in mind, many common component failures should be rectified by the importer and its dealer network at no charge to the owner of the vehicle, according to the Australian Competition and Consumer Commission. That would hold true even beyond the expiration of the standard factory warranty.

The ACCC is the watchdog that enforces compliance with Australian Consumer Law (ACL), which stipulates that the 'rejection period' for a claim from a consumer may exceed the duration of the factory warranty.

In other words, if the dual-clutch transmission in your car calls it quits three days after the end of the factory warranty – and provided there's no reason for the manufacturer to suspect your vehicle has been subjected to abnormal use (abuse) – the cost of repair is to be born by the importer. That's what ACL tells us, but the rejection period hasn't been tested in courts of law. So if the transmission dies two years after the expiration of the warranty period, ACL may not provide the protection the vehicle owner requires.

At that point, the owner's only option – in the face of the importer and its dealer rejecting the claim – is to take them to court. Dragging a car company or a dealer through a civil and administrative appeals tribunal over a period of months, costing the owner a legal adviser to assist with the claim – only to have the claim rejected by the tribunal anyway – is when an extended warranty really pays for itself. And you’ll have your vehicle back on the road much sooner.

But ultimately, you may not need an extended warranty; it all depends on how risk averse you are.