When Does an Extended Warranty Take Effect?

by Dwayne

I bought a new car and along with it an extended warranty. The car came with the manufactures normal new car warranty. Seventeen months after buying the new car I traded it in. The manufactures warranty was still valid. I was told I could get a rebate for the extended warranty. When I applied for the rebate I could only get a portion of it.

It was my understanding the -Extended warranty took over when the manufactures warranty expired. If that is correct why would the extended warranty be prorated for rebate? I can expect some administrative fee but as the car was still under the manufactures warranty the extended warranty should have not even kicked in!

Why should I pay for the months the warranty was not in effect? Is the extended warranty paying the same time the manufactures warranty is paying? It was my understanding the extended warranty picks up when the manufactures warranty expires; why should I be charged (prorated) for the time the warranty was not effective?

Answer: Hi Dwayne,

Most extended warranties will take effect on the date they are purchased (regardless of what manufacturers warranty might exist). This means that in many situations they will run concurrently with the factory warranty, but will really be of no use as the factory warranty would trump the extra coverage while it is in effect. This is one
of the major reasons why warranties will be less expensive the newer the vehicle is.

The warranty company is able to "float" the money you paid for the coverage and not be responsible for any repairs. On the other hand if you purchased coverage on a vehicle with no manufacturers warranty in effect, then the warranty company is responsible from day one and therefore a higher cost.

Where it gets tricky is with the dealers profit. Most dealerships don't pass on the savings from the lower new car coverage and simply use the lower cost to increase their profits.

Unfortunately, because the coverage runs concurrently you will be stuck with a prorated refund vs. money back in full. Not all warranty companies work this way and some (very few) will start coverage as soon as the factory coverage runs out, but I personally do not know of any currently offering that.

From a warranty companies perspective it turns out to be profit that offsets other risks.

You paid for coverage you never used or essentially never could have used, because the factory warranty was in effect, while the warranty company may have paid three times as much in claims as what was paid to to them to buy the coverage on some other persons vehicle.

That other person won and you lost...Doesn't seem right, but unfortunately it's how it works...

Take care,

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