Car warranty insurance: What you didn’t know, and what you should know in 2021
Car warranty insurance sometimes come with a bit of a bad reputation, but data shows they can actually save you a lot of money.
If you've ever bought a brand new car, you probably know a little bit about warranties. You might have even made a claim on one.
That's because all new cars in Australia come with a manufacturer's warranty, which helps cover the cost of certain defects or faults, within a set period.
But did you know there's an alternative option for older cars that have lapsed their manufacturer's warranty? In fact, you can get used car warranty insurance policies for cars that are up to 12 years old.
If that's news to you, keep reading. Because we've got more info on exactly how car warranty insurance policies work and why they're more helpful than they're (sometimes) given credit for.
So what are they?
Simply put, car warranty insurance policies are designed for cars that are no longer covered by their manufacturer's warranty. They can help cover the cost of repairs if your vehicle (or its components) have certain mechanical faults or defects.
Let's say your front suspension fails, for example. Car warranty insurance would help cover the cost of that repair. It gives drivers some peace of mind that they won't be facing a huge repair bill shortly after their manufacturer's warranty ends or if they've recently splashed out on a used car.
Let's imagine you bought a brand new Toyota Corolla in 2018, with a 3-year manufacturer's warranty. That warranty would be nearing expiry right around now. But if you wanted more cover, it's pretty easy to buy car warranty insurance yourself through a third party.
The same applies if you buy a second-hand car that's no longer under its manufacturer's warranty. You can contact an insurance company and buy car warranty insurance anyway.
It's even available for cars that have well passed their manufacturer's warranty. For example, MyCarWarranty provides warranties for cars up to 10 years old and eric Insurance provides warranties for cars up to 12 years old. Nice!
How much does it cost?
As with most types of insurance, it really depends on the specifics. But to give you an idea, I ran an initial quote with eric Insurance, using the details of a 2018 Toyota Corolla. According to the preliminary quote, it would only cost around $20 a month to buy eric's 5-star car warranty for 12 months.
Drop down to 4-star coverage and it would be closer to $15, while a 3-star policy would be less than $10 a month. Of course, you get less comprehensive cover, but it'll still give you some protection against any unexpected shocks.
Is it worth it?
Obviously, if you don't end up claiming on your car warranty insurance policy, you might question your decision. But claims data shows that there are plenty of customers who get their money's worth.
For example, looking at eric Insurance's claims data, over 3,000 people claimed on their car warranty insurance in 2020 alone, to the tune of more than $4.5 million total.
In fact, one customer claimed a huge $19,000 to fix engine problems, another claimed $11,000 to fix electric faults and a third claimed more than $4,500 to repair suspension issues.
So imagine you get stung with a 5-figure repair bill just months after buying a car. Could you afford it? If it would be tough to stomach, car warranty insurance might be worth considering.
Plus, many car warranty insurance policies also cover more than just repairs. For example, looking at the eric Insurance PDS, its warranties can also help towards the cost of towing, accommodation, hire cars and even meals if you end up stranded away from home while emergency repairs are made to your car.
So if your water pump fails while you're on an interstate trip and you can't make it to your planned accommodation, a car warranty insurance policy can help cushion the financial blow. Just remember to keep your receipts!
So what isn't covered?
Although there are a lot of benefits to car warranty insurance policies, it's important to know what isn't covered. This will differ between products, so if you're thinking about buying a policy, always read the PDS carefully. There should be a section in there that clearly explains everything that isn't covered.
However, there are certain things that are not covered, no matter which policy you buy. Damage, such as dents in the body work, won't be covered. Neither will theft or general vandalism. That's what comprehensive car insurance is for.
General wear and tear won't be covered either – so that's things like deteriorating tire treads or an air filter that's due for replacement.