Are Car Protection Plans Worth the Money?

Woman looking at car dealer documents

Whether you're buying a new or a used vehicle, chances are good the dealer will offer you a car protection plan at the time of the sale. This plan, also known as an extended warranty, is designed to cover repairs to your car after the manufacturer's warranty period has ended. Although this may sound like a good idea, there are several factors to consider before signing up for this service.

Cost and Value of Extended Warranties

Before you decide if a car protection plan is right for you, it's important to understand the typical cost for this type of warranty and how that compares to typical car repair costs. Every situation is unique, but knowing the basics can help you make your decision.

Average Cost of a Car Protection Plan

According to Endurance, a company that provides these warranties, the average cost of a vehicle protection plan ranges from $300 to $700 annually. There are a number of variables that can make the plan more or less expensive, including the value of the vehicle, the age of the car, and the usage the car receives. The type of plan you choose is also a factor, as is your location.

Average Annual Cost of Car Repairs by Age of Vehicle

Consumer Reports has collected a great deal of data on car ownership costs, including the cost of repairs. You can use their chart to find out how much it costs to own your vehicle over time and how much you can expect to spend on maintenance and repairs.

According to the Consumer Reports data for the median annual car cost of $9,100, you can expect to pay the following average maintenance and repair bills:

Age of Vehicle Average Cost of Maintenance and Repairs
One year Less than $900
Three years About $1,900
Five years About $3,800
Eight years About $5,400

Extended Warranty Coverage

Although simply comparing the average maintenance and repair cost with the average annual cost of an extended warranty indicates that these plans might offer a cost savings, it's also important to consider what is and is not covered under the warranty. According to DMV.org, the following items generally are not covered by extended warranties:

  • Tires
  • Brakes
  • Paint
  • Exhaust systems
  • Replacement light bulbs
  • Vehicle batteries
  • Shocks

In addition, many warranties exclude parts that are worn and only extend coverage to those parts that actually break.

This means that a large portion of the repair and maintenance costs for your vehicle will not be covered by the protection plan.

Weighing Your Options

Whether or not an extended warranty is worth the money really depends on your specific situation. These plans have advantages and disadvantages that may or may not apply to you.

Advantages of Extended Warranties

According to JD Power and Associates, you may want to consider a car protection plan for the following reasons:

  • For some vehicles, this type of plan could save you significant money in repairs. These warranties cover many of the most expensive repairs, and if those happen to you, you could end up money ahead.
  • You'll have peace of mind knowing the repair is covered. If you worry about car repairs, this can be helpful.
  • You can tailor the protection plan to your needs, since there are many options available.
  • If you buy the warranty at the dealership, you won't have to worry about making monthly payments on it or handling any associated paperwork.

Disadvantages of Extended Warranties

There are also a number of reasons a car protection plan may not be a beneficial choice:

  • The warranty doesn't cover everything, so there's a good chance you'll still end up paying for many repairs.
  • You may need to have the repair done by a service provider that the warranty company chooses. This may or may not be convenient for you.
  • You'll need to pay for the warranty, whether or not your car ends up needing repairs that are covered.

Situations Where a Warranty May Make Sense

Every car ownership situation is unique, and there are dozens of different warranties to choose from. However, if one of these general situations applies to you, it may be worth shopping for an extended protection plan for your vehicle:

  • You own a car with a poor reliability history. If you own a vehicle model that is prone to break-downs, especially those that involve repairs the warranty will cover, then a warranty may be a great idea for you.
  • You plan to own your car for many years and will drive it more than 20,000 miles each year. If you do a lot of driving and keep your cars until they are no longer able to be repaired, a warranty could end up saving you money. Shop for one based on the age of the vehicle, rather than the mileage driven.
  • You own a car with many high-tech systems that could possibly fail. Today's cars are technologically advanced, and some models have all the high-tech options available. These systems are useful, but they also present an opportunity for something to go wrong. Many warranties cover this type of repair.

When a Car Protection Plan Isn't a Great Deal

There are also situations where buying a car protection plan simply isn't worth the money. This may be the case if the following apply to you:

  • You own a car known for its reliability. These cars are less likely to break down, meaning you would not use the warranty.
  • You don't drive your car often. If you drive your vehicle infrequently, you place less stress on its systems and would be less likely to need repairs.

How to Decide

When it comes to deciding on whether to buy the extended warranty for your vehicle, follow these steps to make your decision:

  1. Find out how much the extended warranty will cost for your vehicle. Talk to the dealer and to reputable independent providers to get an estimate. Know exactly want the warranty will cover.
  2. Learn about the reliability of your car. You can look your car up on Consumer Reports to see how its various systems have held up over time. This can give you a sense of whether you'll need to perform repairs in the time you own your vehicle.
  3. Based on what you find out about car reliability, estimate how much you'll spend on car repairs over the life of your car. Compare this figure to the quotes you received on the car protection plan.

Depends on Your Situation

Whether or not a car protection plan is worth the money depends on your specific situation. Take the age and reliability of your car, as well as your driving habits, into account as you make your decision about whether to purchase this type of plan.

Are Car Protection Plans Worth the Money?