What Are Vehicle Protection Plans?

Vehicle protection plans explained

A vehicle protection plan (VPP), or vehicle service contract, is a contract that offers coverage for automobile repair bills. It's an agreement between a vehicle owner and a warranty provider or administrator that the warranty provider will cover certain repair costs over a specified period of time or within a given mileage limit.

Your vehicle’s manufacturer, a dealership or a third-party warranty company can provide a vehicle protection plan for you. Coverage typically begins after the manufacturer's original warranty period ends, but some plans are designed to overlap with the vehicle’s factory warranty, providing complementary protection.

» MORE: Understanding manufacturers’ extended warranties

Other types of vehicle protection plans

Depending on the kind of coverage you need, you may want to consider a different type of plan to protect your car. We’ll explore some options for protecting your vehicle so you can choose the right one for your needs.

• Extended warranties: An extended warranty adds extra years and mileage to the length of your car warranty. You can purchase this product through your car’s manufacturer or dealership. 
• Mechanical breakdown insurance (MBI): This state-specific type of coverage is available in jurisdictions where VPPs must be regulated as insurance. Also called car repair insurance, MBI is an insurance endorsement you can add to your existing car insurance policy. Like an extended auto warranty or vehicle service contract, it covers mechanical breakdowns.
• GAP insurance: If your car is ever totaled, guaranteed asset protection (GAP) insurance covers the difference between what you owe on it and what the insurance company will pay you for the car.
• Prepaid maintenance plans: These plans are sold by dealerships to cover the costs of services like oil changes for a set period of time.
• Tire and wheel protection: These plans cover your tires and wheels if you need a repair or replacement.

Before you buy anything, determine if the upfront cost makes sense for what you'll get in the long term.

What are the benefits of a vehicle protection plan?

Here’s a breakdown of what you usually get when you buy a vehicle protection plan:

• Warranty coverage: The primary benefit of a vehicle protection plan is that it can keep you from paying for vehicle repairs out of pocket. That means your protection plan can essentially pay for itself if you avoid more in repair bills than your plan costs you. On the other hand, your coverage may be a waste if your car doesn’t have a covered breakdown during your contract term.
• Roadside assistance: This umbrella term can include a variety of services, such as towing, flat-tire repairs, fuel deliveries, lockout services and jump-starts.
• Rental car reimbursements: If your vehicle is in the shop for covered repairs, many plans cover some or all of the cost of a rental car for a specified number of days.
• Trip interruption protection: If a covered breakdown occurs while you're away from home, the plan may cover related expenses, such as meals and lodging.

» LEARN: What to know about extended auto warranties

What does a vehicle protection plan cover?

The parts covered by a vehicle protection plan can vary widely. Some car warranties cover almost every part of a vehicle, while others only cover a specific list of components.

Most vehicle protection plans fall into three levels of coverage:

• Powertrain coverage is often the most basic type of plan available and usually the least expensive. A powertrain warranty typically covers your engine, transmission, axle(s), transfer case (if applicable) and other major components that generate power or deliver it to your wheels. These are some of the most expensive parts of a vehicle to repair or replace, so this coverage can provide peace of mind even though it is relatively minimal.
• Stated component coverage usually includes everything covered by a powertrain plan plus additional systems and components. The specific items covered vary from one plan to another but typically include things like your vehicle’s electrical system and air conditioning.
• Exclusionary coverage is the most comprehensive level of coverage, and it’s usually the most expensive. Also called bumper-to-bumper coverage, it includes all the mechanical and electrical components of your vehicle except for a list of exclusions. That means if a component or system is not listed in the exclusions, it's covered by default.

It's important to carefully read and understand the terms and conditions of any vehicle protection plan before purchasing it. You should also keep a copy of your vehicle service contract so you have the terms in writing in case there’s ever a dispute later on.

“I was told when I bought my new vehicle protection plan it covered everything. However when I picked up my vehicle they said it didn’t cover shop fees or something. So I had to pay my deductible and more for supplies,” reported Beau, a reviewer from Minnesota. “I am not sure if the dealership lied to me or if [they] just don’t cover everything.”

Make sure you understand what your protection plan covers before purchasing one.

VPPs have some common exclusions you should be aware of. For example, protection plans practically never cover repairs needed due to missed maintenance or preexisting conditions. Like your factory warranty, you should only expect your vehicle protection plan to protect you from repairs needed due to manufacturing defects.

That means preventive maintenance, like oil changes, and parts designed to wear out over time, like brake pads, aren’t covered. (Your warranty contract will likely require you to keep up to date with maintenance if you want your claims approved, though.)

How does the claims process work for vehicle protection plans?

If you need to make a claim, contact your warranty provider to clarify your coverage, the claims process and where you can take your vehicle for repairs (some plans allow any ASE-certified shop, while others require a dealership).

Make sure your warranty company authorizes any work before repairs begin. When you take your car in, the shop should diagnose the issue and get the OK from your provider for covered repairs; once approved, they'll complete the repairs, and you'll pay only your deductible upon pickup.

How much do vehicle protection plans cost?

On average, most vehicle protection plans cost about $2,000 to $4,000 for three to five years of coverage. The cost of your plan will depend on several factors, including the level of coverage provided, how long the coverage lasts, the make and model of your vehicle and who’s selling you the plan.

Some plans also have a deductible, which is the amount the vehicle owner must pay out of pocket before the plan covers the rest of the cost.

The good news is you can usually make monthly payments on your protection plan, so you don’t need to pay for the whole thing upfront.

It's important to shop around and get quotes from multiple providers to ensure you are getting a good deal. Car warranty costs can vary erratically from provider to provider, so you may be able to score some real savings by comparison shopping.

How to compare vehicle protection plans

When shopping for a vehicle protection plan, there are several factors to weigh. Alongside cost and coverage levels, make sure to find out how each plan you’re considering stacks up in the following categories:

• Waiting period: Waiting periods can vary by VPP provider. If you anticipate an immediate need for coverage, look for a plan with a shorter waiting period before you can make your first claim.
• Limits of liability: Vehicle protection plans may limit the amount they will cover by individual repair visit, or they might have an aggregate payout limit for the life of the contract. If repairs on the vehicle model you own tend to be expensive, a plan with higher limits may suit your needs best.
• Cancellation policy: Make sure you know what happens if you decide you don’t want the plan after all. You may be able to get a full or prorated refund, but time limits vary.
• Transferability: Most VPPs are transferable if you sell your car, but fees may apply. If the plan is transferable to your vehicle’s next owner, you may be able to get a little extra money out of the sale.
• Maintenance requirements: Your claim may be denied if you don’t meet requirements for ongoing vehicle maintenance. Ensure you know what’s expected of you.
• Preauthorization: You will probably need to get repairs preauthorized, especially if you have to go outside of your plan’s authorized service network. Be aware of the provider’s preauthorization process and any exclusions. 

Is a vehicle protection plan worth it?

A vehicle protection plan is more likely to be worth the cost if any of the following statements are true for you:

• You drive an unreliable car.
• The cost of the plan is less than you expect to spend on repairs.
• Getting a large repair bill could hurt you financially.
• You’re willing to spend a few thousand dollars for peace of mind.

As you can see, whether or not a vehicle protection plan is worth it depends on your specific vehicle, your financial situation and your risk tolerance.

Think of it this way — a VPP can put you ahead financially if it covers more in repair bills than it costs you to buy. However, most warranty companies price their plans so they don’t lose money on the deal. If you only want an extended warranty as a way to save money, you might be better off just saving your money and paying for repairs out of pocket.

However, if you’re more interested in a vehicle protection plan as insurance against a massive repair bill you have no way of paying, you may still feel you got your money’s worth even if your plan doesn’t pay for itself in covered repairs.

“Having a vehicle protection plan is really valuable especially with me having cancer,” said Robert, a ConsumerAffairs reviewer from Arizona. “There’s no way I could ever afford a repair on my vehicle.”

“I wanted to make sure that I have that backing … just in case anything major were to go wrong,” said Jennifer, a ConsumerAffairs reviewer in Illinois. “If I weren't to go with an auto warranty, and then if my transmission goes out next year, that's $3,000 out of my pocket, and I really don't want that to happen.”

Who has the best vehicle warranty?

There really isn’t a universally “best” vehicle protection plan. The right plan for you will depend on your vehicle, your budget, your coverage needs and your preferences. Our list of the top car warranties can help make your search easier, but it’s important to remember that shopping around and seeing what’s available are key to finding the right vehicle protection plan for you.

Here’s what to look for in a vehicle protection plan:

• Adequate coverage: Make sure you understand exactly what is and is not covered by the plan. Some plans cover almost all components and systems of the vehicle, while others only cover specific parts or systems. Read the fine print and understand the exclusions. Otherwise, you may be in for a disappointment when you make your first claim.
• A reputable provider: Is the warranty provider well-known? Does it have good reviews? Scams and subpar companies are unfortunately common in the industry, so it pays to make sure you’re staying away from the worst car warranty companies.
• An affordable price: Weigh the total cost of the plan, including the deductible if there is one, against what you’re getting for your money. Make sure you understand how the deductible works and how much you will have to pay out of pocket for covered repairs.
• An easy claim process: Look into the process for filing a claim. Is it straightforward and customer-friendly? Do you have to pay for the repairs upfront, or does the plan provider pay your mechanic directly? Policies differ, so it’s worth making sure you know what to expect before you sign up.
• Additional benefits: Consider any additional benefits that are included with the plan, such as roadside assistance, rental car reimbursements or trip interruption reimbursements. These are generally less valuable than warranty coverage, but they could tip the balance if you can’t decide between two VPPs.

Remember to carefully read and understand the terms and conditions of any plan before purchasing it. It's also a good idea to shop around and get quotes from multiple providers to ensure you are getting the best deal. Ultimately, the best vehicle protection plan for you will depend on your individual circumstances and preferences.

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