If you insure a new vehicle with certain carriers, your agent might offer car repair insurance to pay for potential future repairs. This coverage is also known as mechanical breakdown insurance (MBI) and is similar to an extended warranty. As cars get more expensive to fix, here are things to consider while deciding if car repair insurance is worth it.
In this article:
Benefits of car repair insurance
The main benefit of car repair insurance is that it removes the uncertainty over your future car repair costs. In exchange for predictable and relatively low ongoing payments, you can avoid spending hundreds, if not thousands, of dollars in the event of a malfunction or breakdown.
This is the key similarity between car repair insurance and an extended warranty, which you can buy from a dealership or any number of third-party vendors.
How does car repair insurance work?
Most car repair insurance policies pick up where a manufacturer’s warranty leaves off. They don’t cover ongoing maintenance, such as oil changes and tune-ups. And they don’t pay to repair accident damage, which is covered by your collision and comprehensive coverage, if you have it, or the other driver’s liability coverage, if he or she causes the accident.
Car repair insurance does cover repairs caused by a breakdown or failure of your vehicle’s mechanical systems after you pay your policy’s deductible, which can range from about $50 to $250. This bumper-to-bumper protection usually includes repairs to:
- Engines, including cylinder blocks and heads, manifolds, valve covers, and timing belts and chains.
- Transmissions, including transfer cases, electronic shift controls, mounts, seals and gaskets.
- Drive axles, shafts, bearings, and constant velocity joints and boots.
- Air conditioning and heating systems.
- Safety technology, such as cameras, collision warnings and blind spot monitoring.
- Power windows, seats and mirrors, plus keyless entry systems.
Car repair insurance usually also helps pay for a tow and rental car, which are not always included in a manufacturer’s warranty.
Even though many MBI protections are also included in a manufacturer’s warranty, insurance carriers typically require you to obtain coverage while the original warranty is in effect. As warranty protections expire, the corresponding MBI protections take over.
How is car repair insurance different from an extended warranty?
Although car repair insurance and extended warranties both fit the definition of a service contract, there are key differences between them.
|Difference||Car repair insurance||Extended warranty|
|Who gets paid?||Your insurance company.||The dealership, its extended-warranty partner or a third-party provider.|
|Payment options||Pay in full or in installments, similar to insurance premiums.||Often upfront at a dealership, but you can usually fold it into your loan to spread payments out. Some manufacturers and third-party providers offer installment plans.|
|Cancellation options||You can usually cancel at any time.||Dealerships often require upfront payment for the entire policy. Some manufacturers and many third-party providers allow cancellations.|
|Can I trust them?||Insurance companies need to meet regulations and ethics standards enforced by state insurance commissioners.||Better Business Bureau and Trustpilot ratings are a good source of information on manufacturer and third-party plans.|
If you’re buying an extended warranty from a party not affiliated with the dealer, or anyone who contacts you by phone or mail, verify that it is a credible company. The Federal Communications Commission issued an alert recently about scammers trying to hawk phony extended warranties to gain access to potential victims’ credit card and bank information.
Can I get car repair insurance for older cars?
Insurers usually do not extend car repair insurance to older vehicles. GEICO, for example, doesn’t offer its Mechanical Breakdown Insurance to vehicles in service for more than 15 months, or with more than 15,000 miles on them. Allstate requires the manufacturer’s warranty to still be in effect for a vehicle to be eligible for its Extended Vehicle Care.
A notable exception is American Family, which offers powertrain coverage for vehicles with up to 225,000 miles on them through ForeverCar, its MBI provider. However, for cars with more than 105,000 miles on them, this program’s coverage does not apply to systems not related to the powertrain.
Some extended warranty providers, including CarShield, offer coverage for older cars, typically at higher rates than those for newer vehicles.
When is car repair insurance worth it?
You may find car repair insurance to be worth it if your vehicle has advanced safety and convenience features, which can be expensive to fix, and you plan to keep it for a long time. On the other hand, if you don’t plan to keep the car for longer than five years, you probably won’t need car repair insurance.
Here are a few more things to keep in mind:
|Worth it||Not worth it|
|My car has advanced safety and convenience features, and I plan to keep it for a long time.||I have a basic vehicle with standard safety features and limited technology.|
|I don’t mind making regular monthly payments now to avoid a potentially large repair bill down the line as my car ages.||I have a few thousand dollars in a rainy-day fund to cover large, unexpected costs, including car repairs.|
|My insurance company offers car repair insurance with a better rate than I can get on an extended warranty.||My monthly rate on car repair insurance is more than it will cost to add the dealer’s extended warranty to my car loan.|
|The extended warranty I am considering does not cover towing or rental car expenses, or it restricts where I can have the car repaired.||The extended warranty I am considering covers towing and rental car assistance, and lets me get my car fixed at any licensed shop.|
If you are shopping for a new or low-mileage used car, consider asking your insurance company for a quote on car repair insurance, if available, before you go to the dealership. This will allow you to compare rates when the salesperson offers the dealer’s extended warranty.
Are there alternatives to car repair insurance?
Another way to cover potential car repair costs is to put the money you would otherwise spend on car repair insurance or an extended warranty into a savings account while the manufacturer’s warranty is still in effect. By the time the bumper-to-bumper protections expire, you'll likely have saved enough to cover potential future repairs. Better yet, if your car never needs a costly repair, you keep your money.
It also pays to follow the maintenance schedule in the owner’s manual. This is a great way to reduce the likelihood of your car needing costly repairs in the first place.
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