Large car repair bills are something no one wants, which is why policies that offer peace of mind in the form of a set copayment or percentage for car repairs are so appealing. Chances are you've been offered one of these protection plans -- mechanical breakdown insurance or an extended warranty -- when you purchased your car or perhaps even got an offer in the mail. Buyer, beware that what appears to be the same service can actually be very different types of coverage.
Mechanical breakdown insurance is not the same as an extended warranty, though in theory they operate similarly. They help car owners avoid large car repair bills. Both types require repairs to be performed at an authorized repair facility and, assuming the policy is high quality, the list of facilities is usually quite comprehensive. Both types have different levels of plans that provide coverage of a range of parts and types of repairs. The most expensive plans will cover repairs on roughly all of the same components as the bumper-to-bumper warranty that came with your car from the automaker.
Let's take a look at the key differences between mechanical breakdown insurance and extended warranties.
Who offers the policy?
Mechanical breakdown insurance is an actual insurance policy, issued by a car insurance company that is similar to your auto insurance policy. An extended warranty is offered by an automaker or by an independent third party, which is sometimes less than reputable.
What are the costs?
Like your car insurance policy, you may pay for mechanical breakdown insurance for a set period of coverage, such as six months or a year. You continue to get the coverage as long as you continue to pay the premium. In this way, your costs are spread out over time and you can drop the coverage at any time.
Where and when do you buy them?
Mechanical breakdown insurance can be purchased at a car dealership, through the lender of your car loan or directly from a car insurance company. It can be purchased for new cars, though many policies won't be of much use until the car is out of the bumper-to-bumper warranty period from the manufacturer. It can be more useful to add this coverage when the car is nearing the end of the bumper-to-bumper warranty. An extended warranty is usually purchased through a car dealership at the time of purchase, though most coverage it provides won't be necessary until the new car warranty expires. It also can be purchased through a reputable independent company or at the car dealer at a later date.
Read More: Source