Vehicle service contract plans are bad deals for most drivers

You’ve likely experienced a sales pitch for a vehicle service contract, also known as an extended warranty, whether it’s from rapper-turned-actor Ice-T or from ESPN’s Chris Berman hawking plans for CarShield. Or robocalls warning you that your car’s warranty is about to expire.

Annoyances aside, you’re probably wondering whether these plans are worth the thousands of dollars you’d pay for coverage. Judging by all the fine print and the number of consumer complaints these plans generate, we say no way.

Consumers’ Checkbook has long advised against purchasing any type of mini-insurance policy, including home warranties, service contracts for electronics, trip protection plans, water-and-sewer line coverage, and others. These plans are highly profitable for the companies that sell and administer them but are usually awful deals for consumers.

Our review of auto service contracts from CarShield and dozens of other sellers and administrators indicates their products are especially lousy buys. These companies commonly use misleading marketing to scare consumers into paying thousands for their products and then, when customers’ vehicles need repairs, go to great lengths to avoid paying for them.

» READ MORE: Meet the robocall avenger: Andrew Perrong, 21, sues those pesky callers for cash

CarShield and many other warranty sellers, including Missouri-based Autoplex Extended Services, Auto Protection Club, US Automotive Protection Services, and Vehicle Protection Center, have been awarded “F” grades by the Better Business Bureau. Thousands of consumers have filed complaints about these companies to the St. Louis-based BBB, which covers the areas where CarShield and many other extended warranty companies are headquartered.

Vehicle service contracts are big business, with $35 billion in retail sales in 2018, according to Colonnade Advisors, an investment banking firm.

Prices for plans vary, depending on the breadth of coverage; vehicle make, age, and mileage; and number of years (the longest terms are seven years or 100,000 miles).

We found one plan priced at nearly $6,700 and short-term plans for about $2,500. But most of the plans we checked cost around $3,000 to $4,000.

Generally, the more you pay the broader your coverage. With some companies, paying more upfront lowers or eliminates per-repair deductibles, which are usually about $100.

CarShield and many other sellers don’t provide the coverage themselves. Instead, claims are handled by third-party “plan administrators”; if you need a repair, you contact the administrator, and it decides whether to pay for it. Get a repair without first obtaining authorization and you’re likely on your own.

Service contracts marketed by automakers through their dealership franchisees – though generally the subject of fewer complaints – usually require that you use the dealers’ repair shops. That can be a drawback; our surveys indicate that, on average, car owners are more satisfied with repairs done by independent shops than by dealers.

Wade through the fine print for these contracts, as we did for more than a dozen of them, and you’ll find so many excluded repairs that you’ll wonder whether there’s anything left on your car that is covered. Common components usually excluded brake shoes and rotors, clutches, fuel injectors, exhaust systems and catalytic converters, batteries, shocks and struts.

Sometimes you can increase coverage by buying a premium plan, but even with such Cadillac coverage, we found long lists of excluded repairs.

You’ll also be on the hook for the cost of diagnosing anything that turns out not to be covered. Some plans provide details about what is covered but say little about possible parts and situations that aren’t. Telling the difference practically requires a degree in automotive engineering.

Even worse, the contracts often aren’t provided until after the plan is purchased, unless you ask to see it in advance or find it online. It’s clear that many who purchase these policies don’t realize the limitations of the plans: In May, the BBB issued a consumer alert for CarShield’s administrator, Colorado-based American Auto Shield, because of the number of complaints from customers who said they weren’t aware of all the restrictions until they tried using the coverage.

Even if a repair seems covered under the contract, there still are many reasons companies might deny your claim. For instance, the plan administrator may conveniently decide the problem existed or was developing before you purchased coverage.

Similarly, the administrator might conclude that you failed to take action to avoid or limit damage, such as continuing to drive the vehicle after hearing squeaks or rattles or seeing warning lights.

There’s also a good chance the administrator will refuse to pay out if you can’t provide proof that you performed all required oil changes on time or otherwise followed the manufacturer’s maintenance recommendations. Beyond that, plans typically impose a waiting period of 30 days or 1,000 miles after you sign up, during which no repairs are covered.

As if all these aggravations weren’t enough, some plans limit the hourly amount they’ll pay to reimburse your mechanic. And administrators sometimes take weeks or more to decide whether to pay as they send inspectors to assess the problem or wait for a required second opinion from another repair shop.

You’ll usually do better paying for any repairs yourself. That way, you get to make all the decisions, not a company focused on holding down its own costs.

Delaware Valley Consumers’ Checkbook magazine and Checkbook.org is a nonprofit organization with a mission to help consumers get the best service and lowest prices. It is supported by consumers and takes no money from the service providers evaluated. You can access Checkbook’s full report on vehicle service contracts and all its ratings of local service providers (including auto repair shops) until Jan. 10 at Checkbook.org/Inquirer/Vehicle-Service-Contracts.