Mechanical breakdown insurance vs. extended warranty

What is mechanical breakdown insurance?

Mechanical breakdown insurance (MBI) is a form of insurance that covers the cost of repairs for mechanical failures in a vehicle. While some providers offer MBI as a stand-alone product, it’s typically sold as optional coverage that can be added to a car insurance policy, like roadside assistance or rental car coverage.

MBI is different from most types of car insurance, though. Standard auto policies cover damages from events like collision or theft. An MBI policy, on the other hand, covers repairs for breakdowns that aren’t caused by a specific incident.

What does MBI cover?

An MBI policy covers a vehicle’s internal, functional components. Insurers often offer multiple levels of MBI coverage, from basic protection for the engine and drivetrain to plans that cover nearly all electrical and mechanical systems.

There are two types of MBI coverage:

• Exclusionary MBI covers every system and component in your vehicle except those specifically stated as exclusions in the contract.
• Named component MBI lists the systems and components that it does cover in the contract. Anything that isn’t named in the contract is excluded from coverage.

What doesn’t MBI cover?

There are a few things that an MBI policy won’t cover, no matter how comprehensive the plan, including:

• Damage caused by misuse
• Routine maintenance services
• Damage resulting from failure to perform maintenance services
• Collisions, vandalism, severe weather and other sources covered in a standard car insurance policy

MBI restrictions

While you may find some exceptions, insurance companies usually have age and mileage limitations for MBI policy eligibility. Restrictions are often strict. In many cases, you must buy MBI while the car still has low mileage to keep coverage as it ages. Geico, for example, only issues new MBI policies to cars with fewer than 15,000 miles but will extend coverage for up to seven years or 100,000 miles for existing MBI customers.

Where can you buy mechanical breakdown insurance?

MBI policies are available in all 50 U.S. states from insurance providers. You can buy MBI as add-on coverage for a regular auto policy, but you may also find some insurers that offer it separately. Some car insurance companies only offer MBI in certain states due to legal or financial restrictions.

What is an extended warranty?

Extended car warranties are another form of vehicle protection plan that cover the cost of repairs for mechanical breakdowns. However, these service contracts are sold by auto manufacturers and third-party providers rather than insurance companies.

What does an extended warranty cover?

Like MBI policies, extended warranties are available with different levels of coverage. Extended warranty plans tend to fall into three main categories:

• Bumper-to-bumper: Exclusionary warranties that cover all but a few listed components are often referred to as bumper-to-bumper warranties because they cover almost everything from the front of the car to the rear.
• Powertrain: This is the most basic level of coverage available. A powertrain warranty only protects core components like a vehicle’s transmission, drivetrain and engine system.
• Stated component: Often referred to as powertrain plus plans, providers often offer mid-level protection for a few additional systems and components on top of the powertrain coverage.

What doesn’t an extended warranty cover?

Whether the contract is from your car’s manufacturer or an independent provider, it likely contains many of the same exclusions as the ones for MBI policies listed above. Specific exclusions can vary from one provider to the next, so it’s critical to read through the fine print of a contract carefully.

Extended warranty restrictions

Depending on the provider, many extended warranty plans have restrictions on where you can have covered repairs performed. Manufacturer warranties typically require you to get repair work done at a dealership service department.

Extended warranty vs. factory warranty

While both offer repair protection, an extended warranty is fundamentally different from a factory warranty. Every new vehicle comes with a manufacturer’s warranty that covers repairs for a stated period of time or until it meets a certain mileage limit. Extended warranties are optional purchases that continue some of the coverage included in the factory warranty for an additional cost.

Where can you buy an extended warranty?

In most cases, you can buy an extended warranty plan from your car’s manufacturer. This is something that’s often offered to car buyers during the sales negotiation. Manufacturer extended warranties typically require you to purchase coverage from a licensed dealer before your factory coverage expires.

You can also buy an extended warranty for your vehicle from an independent provider. Unlike automaker warranties, third-party providers allow you to purchase a protection plan for your vehicle at any time as long as the vehicle is eligible for coverage. Plans can typically be purchased online or over the phone. Third-party warranty companies also tend to offer a wider selection of plans than manufacturers.

» COMPARE: Top-rated extended warranty companies

Comparing costs: MBI vs. extended warranty

The average cost of an MBI policy is around $100 per year. Car owners typically pay for MBI coverage as an additional cost on their auto policy, whether through monthly premiums or one up-front payment.

Extended auto warranties typically cost between $600 and $1,000 per year. If you buy an extended warranty from your car’s manufacturer, the cost can often be rolled into your vehicle financing. Third-party warranty providers usually offer monthly payment plans, but you can also pay for the entire service contract in one lump sum.

» FIND OUT: Extended car warranty benefits and drawbacks

MBI vs. extended warranty: other costs to consider

There are other financial factors that affect the value of an MBI or extended warranty plan. Additional considerations include:

• Deductibles: MBI policies often have higher deductibles than extended warranties. Your deductible is the out-of-pocket cost you’re responsible for when filing a warranty claim.
• Financing: If you add the cost of an extended warranty to your vehicle purchase financing, you’ll have to pay interest on that amount, increasing the total cost of your plan.
• Cancellation policy: Providers vary in terms of their refund policies when you cancel your plan. Some have shorter free cancellation periods than others and some charge flat fees for canceling.

Compare deductibles before signing

MBI often has higher deductibles than extended warranties. Make sure the savings on premiums aren’t offset by out-of-pocket repair costs.

When to choose mechanical breakdown insurance

MBI policies are best suited for new, low-mileage vehicles. While there may be some overlap in coverage with a car’s factory warranty, MBI can provide inexpensive repair coverage after the new vehicle warranty expires.

Mechanical breakdown insurance pros and cons

There are distinct advantages and disadvantages to MBI you should consider.

When to choose an extended warranty

An extended warranty is a strong choice for older vehicles with expired factory warranties. People who would rather have their vehicle serviced at a branded facility may also prefer an extended warranty over an MBI policy.

Extended warranty pros and cons

Extended car warranties have several upsides compared to MBI but a few downsides as well.