Car Repair Insurance: An Explainer
Standard car insurance comprises liability insurance, which only covers the damage your vehicle does to another vehicle and that vehicle's driver and passengers. Full-coverage insurance (comprehensive and collision coverage) offers compensation for car theft as well as car damage, whether your car was the cause or the passive recipient of that.
But none of these insurance products cover your vehicle's potential mechanical malfunctions, such as a blown radiator, a transmission failure or a leaky fuel system. For those kinds of problems, you'll have to buy mechanical breakdown insurance.
Is Mechanical Breakdown Insurance for You?
Mechanical Breakdown Insurance (MBI) is another word for car repair insurance. It's an optional coverage, so you buy it separately from your required, state-mandated liability coverage. An MBI policy is similar to an auto manufacturer's extended warranty coverage and only costs about $100 a year.
If you have a new-car warranty or an extended warranty, you probably won't need extra insurance for car repairs. If you're deciding to purchase this type of auto insurance policy, you should consider how much the car is worth, how long you plan to keep the car, and how much you'll pay in premiums and deductibles over against the likely repairs the car will need.
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, the claim process and what action the carrier will take. Of course, every auto insurance policy is different, but repair insurance usually covers the following:
- Air-conditioning and heating
- Cooling systems
- Electrical and computer systems
- Exhaust system
- Fuel systems
- Steering components
Many new-car warranties are for three years or 36,000 miles, whichever comes first. While needed repairs are covered, a new car usually needs very little attention (oil changes, tire rotation) for the first couple of years. Of course, repair-type insurance policies will never cover the damage from an accident.
What Is Not Covered By Car Repair Insurance?
There are many fixes for which auto repair insurance offers no compensation. Let's look at these different areas one by one:
The typical MBI policy considers the policyholder to be responsible for routine maintenance due to everyday wear and tear. So, you'll have to pay out of pocket for oil changes, tune-ups, a suspension alignment, brake-pad replacement and, say, getting your vehicle's wheels balanced or rotated. To put it another way, your repair policy will not reward poor maintenance.
Of course, an MBI policy will never cover damage that is the result of an accident. If you are the at-fault driver in an accident—hitting another car or, for example, a fence—collision insurance will cover the damage to your car. If your car is damaged through no fault of your own—a falling tree, vandalism or, for example, fire—comprehensive coverage will pay out.
Further, MBI won't cover cosmetic shortcomings, which include anything that has no impact on the structure and function of your auto. So, you'll have to pony up your own loot to fix scratched paint, a dented bumper, a chipped windshield, damaged trim and molding, ripped car seats, and overall rust and corrosion.
Warranties and Recalls
Auto repair insurance will not compensate you for items that are covered by your warranty coverage or a mandatory or optional recall program. If you want to find out if your vehicle has been subject to a recall, go to the National Highway Traffic Safety Administration's website (nhtsa.gov/recalls): When you enter your 17-digit vehicle identification number (VIN), you can see if there have been any recalls on you car in the past 15 years.
Auto repair insurance will not cover any vehicle damage that happened prior to your buying that insurance.
What's the Deductible for Car Repair Insurance?
According to Consumer Reports, the average repair costs for a five-year-old car is about $205 a year, while the average repair costs for a 10-year-old car is about $430 a year. On other hand, the American Automobile Association (AAA) calculates that common vehicle repairs average about $550 per repair.
Like any insurance policy, you'll have to pay a deductible before your car repair coverage will payout. This deductible could be as little as $100 and as much as $300. In the end, it only makes sense to file a repair claim for a big repair. After all, the more claims you make, the higher your car repair insurance coverage premium will be.
Is My Vehicle Eligible for Car Repair Insurance?
Some insurers only offer car repair insurance for cars that are relatively new. For example, some insurers might underwrite your car for just two years or 25,000 miles, whichever milestone comes first. While other policies may have longer-term milestones, all car-repair insurance coverage is tied to a vehicle's age and mileage. In fact, your carrier should have a list of the vehicles that are eligible for its car insurance for repairs.
When your car-repair policy expires, you can renew it. However, your new policy's terms will be different than your previous policy's, based on your car's increased age and increased mileage. However, 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 repairs coverage.
Warranties vs. Car Repair Insurance
A new-car warranty is backed by the auto's manufacturer but sometimes by a third party. Extended car warranties, sometimes called "service contracts," are usually sold through the manufacturer, car dealers, auto clubs and other companies. In contrast, car repair insurance is backed by an insurance carrier.
If your warranty is issued by the auto manufacturer, you'll have to have any fix-it work performed at an authorized dealership. With car repair coverage, you can get your car fixed pretty much anywhere, although your carrier may ask you to get a second or third quote.
Warranties are usually paid in one lump sum. In contrast, your car repair insurance will be included with your liability premium, which you can pay monthly, semi-annually or all at once.
How Does Car Repair Insurance Work?
When you file an auto-repair claim, your car insurance company's claims representative will verify the loss and determine if the problem is eligible for coverage. (For example, if your engine stops working because of a defective part or parts, that type of problem will probably be underwritten. However, if your engine stops working because you missed a few oil changes or the spark plugs need replacing, your repairs coverage will most likely not underwrite a trip to the auto shop.)
If your auto problem is determined to be within the terms, conditions and limits of your repairs policy, the claims representative will make an initial cost estimate of the repair. Before you take your vehicle to a fix-it garage, you should always ask your insurance company whether your car repair insurance will cover the repair in question. In other words, you should never get your car fixed and then make a claim on your car repair insurance—that's putting the cart before the horse.
The Insurance Information Institute has some smart, important things to say about the claims process for auto repairs:
The adjuster's estimate is a benchmark, not a total claim payment. The insurance company will not expect you to accept their adjuster's estimate until you've established to your own satisfaction that it will cover the cost of repair, so don't feel pressured.
The insurer will expect you to get at least one estimate from your mechanic, garage or car dealer, to compare to theirs.
Your insurance company may opt to pay for the lowest bid, so don't be surprised. Just as you want to be sure your car is adequately repaired, they want to make sure they don't pay a grossly inflated repair bill. Note that one factor that could reduce the amount of your claim for a repair job is what insurance companies call betterment. If your old car is repaired with brand-new parts, your insurer may argue that the repairs have actually enhanced the car's value and therefore they can legitimately reduce your claim by the difference between a used part and a new one.
Your insurer can't require you to have repairs done at a particular shop, but they can insist that you get more than one estimate for the work to be done on your car if they feel the estimate you received is too high.
You can negotiate, if necessary. You don't have to accept it if you believe the amount won't adequately repair your car. Don't hesitate to make your points with the adjuster if the repair estimate is too low based on what your mechanic has told you.
Is Car Repair Insurance Worth It?
Your car repair insurance company may not cover the replacement of your brake pads, but it will cover many part, engine and system repairs. You should think of car repair insurance as protection against big, unexpected losses. For example, if you have to make a repair that only costs $100, you would be better off paying for that yourself. However, if you need $5,000 to replace your transmission system, your car repair insurance is perfect for that type of fix.
Of course, if the deductible on your car repair insurance is more than the cost of the actual fix itself, there's no reason to file a claim. Overall, if you can pay for car repairs out of your own pocket, you should. Save your car repair insurance for big-ticket car repairs.
Questions To Ask About Your Repair Insurance
Neither an auto warranty, an extended warranty nor car insurance for repairs will cover damage to your vehicle due to an accident. While that much is clear, there are many areas of car repair insurance that need to be investigated before you can decide whether this particular add-on auto insurance policy is right for you. When you speak with a licensed auto insurance agent, you'll want to get as much information as you can about the car insurance policy your considering.
What will your repair auto insurance cover that your new-car warranty or extended auto warranty doesn't? You don't want to pay more for a car-repair insurance policy if its coverage just overlaps the warranty you already have.
Can you get your vehicle repaired in any auto shop you choose? Some carriers only allow fixes to be made in a licensed repair shop, while other carriers might have a preferred auto-shop partner. If your carrier's auto-shop restrictions won't allow your favorite mechanic to fix your vehicle, that might be a deal-breaker for you.
Some car repair insurance comes with roadside assistance, rental coverage and other extras. If you're a driver looking for a solid repair policy, it's a good idea to ask about these "hidden" benefits.
When will your carrier refuse to offer repair insurance on your car?
Of course, if your extended warranty expires right before your vehicle's engine seizes, the electrical system goes haywire, the air-conditioner goes bust or the transmission system needs a complete overhaul, you'll be in a good spot if you have car repair insurance.
What Does a Typical Warranty Cover?
You want to avoid overlapping coverage, otherwise you're paying for the same coverage twice. Of course, all warranties and all car repair insurance policies are different, so it's best to discuss the similarities and differences with a licensed car insurance agent.
Let's look at Honda's limited warranty, which is a good example of a typical manufacturer warranty. Unlike insurance companies, a car manufacturer will not charge you a deductible for any fix. Here are the components of Honda's three-year, 36,000-mile limited warranty:
Five-year, 60,000-mile powertrain limited warranty, including the engine and transmission
Honda "genuine accessories" installed at the time of the vehicle's purchase are covered by a three-year, 36,000-mile limited warranty. Vehicle damage that results from the installation or use of non-Honda genuine accessories is not covered under otherwise applicable warranties.
Honda "genuine parts" are covered for one year. The replacement parts must be purchased from and installed by a Honda dealer. The warranty includes parts replacement and labor.
Honda "genuine remanufactured parts" are backed for three years or 36,000 miles.
Five-year, unlimited-miles corrosion protection
Roadside assistance, which is only valid for model-year 2015 and later Honda vehicles up to the three-year, 36,000-mile limited-warranty threshold. Services include jump-starting, flat tire and lockout assistance and towing.
Vehicles less than three years old and with fewer than 36,000 miles are eligible for a Honda Care Vehicle Service Contracts plan. Vehicles less than one-year-old and with fewer than 12,000 miles are eligible for Honda Care Maintenance.
As you can see, it's hard for auto repair insurance to beat this car warranty. But as you no doubt noticed, Honda's parts are only covered for one year—that's where a repair insurance policy could come in handy.
Car Repair Insurance Alternatives
If defensive driving can prevent an accident, these tips can prevent unnecessary fixes. Prevention is worth a pound of cure, as they say! If you choose to forgo purchasing car repair insurance, here are some ways to save and be prepared:
Review your car warranty. If you have a warranty or an extended warranty, your vehicle's problem may well be covered.
Set money aside for unexpected repair bills. AAA says common vehicle repairs cost from $500 to $600, on average, and recommends setting aside at least $50 a month to cover unexpected repairs.
Stay on top of your car's general maintenance. Your car's manual will contain the manufacturer's maintenance schedule, including when and how often the oil should be changed. Taking a course on car maintenance like oil changes might save you a lot in the long run!
Find a good, reliable vehicle. Before you plunk down money for a new car, do some research on the car's reliability using the car's make, model and year. Consumer Reports has a nifty reliability guide.
Find a good, honest mechanic. Ask friends and acquaintances and look at customer reviews. If you own a Fiat, for example, there may be a garage that specializes in Fiat car repair. Ask your mechanic if they have a certification from the National Institute for Automotive Excellence and what type of warranties they give on repair work.
Know Your Car's Value
The Kelley Blue Book and the National Association of Automobile Dealers' NADA Guides are a great place to get a "credit score" on your car type. If the cost of repairs will cost more than your vehicle is worth, you may decide to just buy another car, whether new or used.
Are You Paying too Much for Auto 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 compare car insurance rates every two years. Get a free car insurance quote now by entering your zip code below and answering some basic questions about yourself and your car. Your contact information will only be used by a trustworthy partnering insurance agent in your area for the purpose of showing you the low rates top-rated insurers are offering.
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