Car Repair Insurance: An Explainer

Many people buying a new car often purchase a standard car insurance policy along with an extended warranty to address any car repair issues. Car insurance can cover car damage after an accident, but it won’t cover your car's mechanical malfunctions, such as a blown radiator, a transmission failure or a leaky fuel system. Eventually, when the car warranty expires, drivers will have to pay for costly repairs out of pocket. This is where car repair insurance or mechanical breakdown insurance comes in. It is similar to a car warranty and helps reduce your cost if your car’s major parts fail, potentially saving you a hefty repair bill. But it doesn't cover everything, isn’t available to all cars and may overlap with the coverage you already have. It also won’t cover regular maintenance like tire replacement, oil changes and damages from a car accident. Drivers need to consider their car’s age, how much they drive and their overall budget to determine if it makes sense to buy car repair insurance.

What Is Car Repair Insurance?

Car repair insurance — also known as mechanical breakdown insurance (MBI) — covers the cost of mechanical repairs after your car’s original warranty expires and can be purchased from major insurers. The manufacturer’s bumper-to-bumper warranty covers these mechanical repairs, but once it expires car repair insurance can protect you.

Car repair insurance may cover the fuel system, engine, brakes, steering, exhaust, transmission, air conditioning and more. However, it does have exclusions. Owners with car repair insurance are still responsible for maintaining their car's tires, filters, fluids and spark plugs. However, if the engine needs a new cylinder head or its electrical system fails, car repair insurance saves you from expensive repairs.

Car insurance can cover car damage after an accident, but it won’t cover your car's mechanical malfunctions.

Also, bear in mind that car repair insurance policies can vary from insurer to insurer and not all carriers offer this coverage. Additionally, unlike car insurance, state law does not require you to have car repair insurance.

How does car repair insurance work?

Car repair insurance is similar to service contracts or extended warranties sold by dealers and car manufacturers. It will help fix mechanical problems after your car’s warranty expires.

Some insurers may only offer car repair insurance for a car that is less than 15 months old or with fewer than 15,000 miles. Others may require that you start coverage within 30 days of the expiration of the original warranty. Coverage applies to newer cars; insurance carriers will not continue offering car repair insurance to aging cars as they are more likely to need ongoing repairs. Insurance carriers have varying parameters for coverage limits based on your car’s age and mileage.

Most cars are incredibly reliable in their first seven years or 100,000 miles, so a breakdown of major systems like transmissions and engines is exceedingly rare for new cars unless the driver has failed to maintain and service their vehicle. As cars age, they are more likely to require costly repairs, in which case car repair insurance is unlikely to be an option. The window for coverage will be different depending on your insurer; most insurers will remove car repair insurance from your policy once you’ve exceeded a certain mileage or vehicle age.

Before you take your vehicle to a car shop, make sure that your car repair insurance will cover the repairs. Drivers can contact their insurer to file a claim and get pre-authorization any time their car needs a major repair. The claims representative will determine if the car issue is eligible for coverage. For example, you would likely be covered if you had a failed engine, but if your car has issues stemming from normal wear-and-tear, you will likely not be covered.

If your auto problem is determined to be within the terms, conditions and limits of your car repair insurance policy, the claims representative will make an initial cost estimate of the repair.

What Does Car Repair Insurance Cover?

Before buying any insurance product, you should discuss the coverage specifics with a licensed insurance agent, clarifying what's covered, the coverage's maximum payout and claim process. Of course, every auto insurance policy is different, but repair insurance usually covers the following:

Covered

Brakes

Transmission

Engine

Power system

Exhaust

Cooling systems

Transfer case

Water pump

Drive axle

Some policies may include air conditioning, steering and the fuel system 

Policyholders will have to first pay a deductible out of pocket before their insurance covers repairs. For example, if your deductible is $250 and your car repair claim is $1,000, your insurer will pay $750.

Car repair insurance — also known as mechanical breakdown insurance — covers the cost of mechanical repairs after your car’s original warranty expires.

What Isn’t Covered?

The list of items and damages not covered by mechanical breakdown insurance will vary by the car insurance company but it generally does not cover:

  • New tires
  • Routine maintenance like tune-ups, oil changes and tire rotations
  • New filters
  • New brake pads
  • New spark plugs
  • Fluids (oil, coolant, coolant, wiper fluid, etc.)
  • Damage from a collision
  • Damage from neglect
  • Cosmetic damage
  • Normal wear and tear
  • Damage that happened before you bought the car
  • Corrosion or rust
  • Intentional damage

Policyholders are required to reasonably maintain their car as outlined in their owner’s manual. If, for example, they fail to regularly change their oil regularly, their insurer will reject any claim to fix damage or failure as a result of the negligence.

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How Can I Tell if My Vehicle Is Eligible for Car Repair Insurance?

Most insurers only offer car repair insurance for relatively new cars. For example, they might cover your car for just two years or 25,000 miles, whichever milestone comes first. While other policies may have longer-term milestones, eligibility to buy car repair insurance depends on the vehicle's age and mileage. Your carrier should have a list of the vehicles that are eligible for its car insurance for repairs.

Car repair insurance may cover the fuel system, engine, brakes, steering, exhaust, transmission, air conditioning and more.

When your car repair policy expires, you can renew it. However, your new policy's terms will be different from your previous policy, based on your car's increased age and increased mileage. Your insurer may refuse to renew your policy once your car reaches a certain age or mileage. If this is the situation you find yourself in, you can always shop around to find a carrier that will underwrite your repair coverage.

Which Companies Offer Car Repair Insurance?

  • AAA: Vehicle Protection Plan
  • Allstate: Long-Term Powertrain Wrap Vehicle Service Contract
  • Warranty Direct
  • Endurance Warranty
  • CARCHEX Insurance
  • Allstate
  • American Family
  • Mercury
  • USAA
  • CarShield
  • National General Insurance

Is Car Repair Insurance Worth It?

Could you afford to pay out-of-pocket if your car had a significant issue? If not, car repair insurance might be worth it for you, especially if your car’s warranty has expired or will soon expire. Your car repair insurance company may not cover everything (replacing brake pads is excluded, for instance), but it will cover many parts and system repairs.

Owners with car repair insurance are still responsible for maintaining their car's tires, filters, fluids and spark plugs.

For example, if the deductible on your car repair insurance is more than the cost of the actual repair itself, there's no reason to have car repair insurance. However, if you need $5,000 to replace your transmission system, car repair insurance will save you thousands of dollars.

Drivers may want to consider the following factors when buying car repair insurance:

  • Are you able to choose your repair shop? Insurers often require that you take your car to an approved repair shop, while others are fine with any licensed shop. You may want a plan with flexible repair options.
  • Are there added benefits that come with the policy? Some car repair insurance policies include extras, like trip interruption coverage, roadside assistance and rental reimbursement coverage.
  • Can you transfer the policy to a new owner if you sell your car? Some insurance policies will allow you to transfer to a new owner.
  • Do you have coverage through an extended warranty or a new car warranty? If so, you won’t need to buy car repair coverage.
  • Is roadside assistance included? This usually includes gas delivery, flat tire service and more.
  • How long is the claims process if your car breaks down and needs immediate repair? You don’t want a slow claims process that keeps you from being mobile.
  • Are you covered if you need a rental car? If your car breaks down far away from your home, will you be able to get a hotel stay without having to pay out of pocket?

FAQs

What’s the difference between car repair insurance and an extended warranty?

Drivers can purchase car repair insurance through an insurance company for a newer car, while an extended warranty can be purchased through a dealership before the current warranty expires. There is typically a cutoff (age or mileage) when your car becomes ineligible for car repair insurance, while you can buy a third-party extended warranty anytime in a variety of coverage options.

What is CarShield?

CarShield is a vehicle service contract broker that sells vehicle service plans, which are similar to extended warranties, for new and used cars. They offer five levels of protection plans, plus a roadside assistance program and a motorcycle and ATV coverage plan.

Can you use car repair insurance for wheels?

No, car repair insurance does not apply to tire rotation, wheel balancing or tire replacement. It cannot be used to fix wheels after an accident (collision coverage would cover this) or damage due to vandalism (comprehensive coverage would cover this).

Key Takeaways

  • Car repair insurance covers major repairs to your vehicle, but not routine maintenance or wear and tear.
  • Car repair insurance is only available for relatively new cars since the older your car gets, the more likely it will break down.
  • Not all insurers offer car repair insurance, and carriers all have different terms.

Auto Insurance and Auto Repair Insurance

Car repairs are not your only cost as a car owner. You may be paying more than you need to for car insurance. That's why it's a good idea to shop around and compare car insurance rates every two years. Get a free car insurance quote from SmartFinancial by entering your zip code below and answering some basic questions about yourself and your car.

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