Mechanical Breakdown Insurance vs. Extended Warranty: Which is Better?

Owning a car inevitably comes with repair costs. Parts wear out, systems fail unexpectedly, and accidents happen. When major repairs crop up, they can deal a financial blow – especially right after the factory warranty expires.

To manage the risk of unforeseen repair bills, consumers have two main options:

• Mechanical breakdown insurance
• Extended auto warranties

But what’s the difference between mechanical breakdown insurance and an extended warranty? Which option provides better financial protection?

Below we’ll compare the pros and cons of each coverage type. Read on to learn which one is the smarter choice for your unique situation.

What is Mechanical Breakdown Insurance?

Mechanical breakdown insurance (MBI) covers the cost of repairs when specified parts like the engine, transmission, or electrical system break down. It helps pay for expensive repairs that occur after the manufacturer’s warranty expires.

Here’s an overview of how mechanical breakdown insurance works:

• Covers failures of listed components once the factory warranty ends
• Pay per repair, subject to deductible and reimbursement limits
• Premium paid monthly or one-time lump sum
• Typically lasts 3-5 years or 60,000-100,000 miles
• Age, mileage, and repair history determine eligibility and pricing

Mechanical breakdown insurance acts like an insurance policy. You pay premiums and submit claims to get reimbursed for covered repairs. Policies list exactly which vehicle parts are included and exclusion apply.

What is an Extended Auto Warranty?

Extended warranties (also called vehicle service contracts) extend the manufacturer’s original warranty after it expires. Warranties cover repairs due to defects rather than just wear and tear breakdowns.

Key facts about extended auto warranties:

• Extends warranty on the entire vehicle for defects/flaws
• Repairs covered directly by the contract provider
• Contract purchase price paid upfront or financed
• Typically last 1-7 years or up to 150,000 miles
• Vehicle age and mileage determine eligibility and pricing

Extended warranties are actually service contracts, not insurance products. You pay a contractor to assume the repair costs rather than submitting claims to an insurer.

Key Differences

While mechanical breakdown insurance and extended warranties have some overlaps, there are important distinctions:

In short, MBI reimburses you for certain repairs while extended warranties arrange for covered repairs upfront. MBI focuses on wear-related breakdowns versus defects under extended warranties.

What Does Mechanical Breakdown Insurance Cover?

Mechanical breakdown insurance covers repairs to listed parts after they suffer operational failure from normal wear and tear. Covered components may include:

• Engine
• Transmission
• Drive axle
• Electrical systems
• Steering
• Brakes
• Cooling system
• Fuel system
• Seals and gaskets

Parts like upholstery, paint, glass, and trim are not covered since they don’t break down mechanically. MBI also won’t cover repairs stemming from accidents, collisions, vandalism, or negligence.

Coverage is limited based on your selected reimbursement limit per repair and aggregate limit for the policy term. For example, you might choose a $1,000 limit per repair up to $5,000 total over 5 years. So MBI helps offset but not fully fund major repairs.

What do Extended Warranties Cover?

Extended warranties are broader than MBI policies. They cover repairs to any original mechanical or electrical component due to a defect in materials or workmanship.

Repairs related to the following are usually included:

• Engine
• Transmission
• Drivetrain
• Steering
• Suspension
• Electrical components
• High-tech components
• Air conditioning
• Entertainment systems

Coverage is dictated by the specific contract. Bumper-to-bumper warranties are comprehensive while powertrain warranties cover less. Exclusions like trim, glass, and tires still apply. Accident damage and improper maintenance are also excluded.

Warranty companies pay repair shops directly as issues arise rather than reimbursing you like MBI. This means you pay your deductible only.

What is Better – Mechanical Breakdown Insurance or Extended Warranty?

So should you get mechanical breakdown insurance or an extended warranty? There’s no one-size-fits-all answer. The right option depends on:

• Age and mileage of your vehicle
• Repair history and anticipated repair needs
• Whether you want to cover defects or just breakdowns
• If you want repairs paid directly under a warranty
• Your budget constraints

Here’s how to choose the best solution:

Newer, Low Mileage Cars

Extended warranty recommended – Newer cars under factory warranty are less prone to wear-related breakdowns. Warranties cover defects. MBI offers less value for newer cars.

Older, High Mileage Cars

MBI recommended – Once past 100,000 miles, wear and tear breakdowns become more likely. MBI directly covers such failures while warranties exclude wear issues.

Tight Budget

MBI recommended – Monthly MBI premiums are easier to fit into a tight budget. Extended warranties require a large upfront payment which can be hard to afford.

Want Direct Repair Payment

Extended warranty recommended – Warranties let repair shops bill the provider directly. MBI reimburses you later. Direct payment is more convenient.

Seeking Comprehensive Coverage

Extended warranty recommended – Warranties cover the entire vehicle with few exclusions. MBI only covers certain expensive parts. Warranties are more comprehensive.

As you can see, the ideal option depends on your specific situation. Carefully compare MBI and extended warranty options to make the right choice.

Shopping for Mechanical Breakdown Insurance

If you decide mechanical breakdown insurance fits your needs better than an extended warranty, here are some tips for shopping for a policy:

• Get quotes from insurers like Allstate, Geico, and AAA
• Compare reimbursement limits and deductibles
• Check the list of included parts
• Make sure exclusions are reasonable
• See if used cars qualify
• Look for extra perks like roadside assistance
• Research the financial strength of insurers
• Read sample contracts carefully before signing

Reputable insurers like Amica may offer mechanical breakdown insurance along with standard auto policies. Purchasing from established national companies with strong financial ratings ensures claims get paid.

Shopping for Extended Auto Warranties

If an extended warranty seems a better option than mechanical breakdown insurance for your situation, use these guidelines when shopping:

• Check warranty options from your dealer or manufacturer
• Research third-party warranty companies like Endurance and CarShield
• Compare coverage tiers and deductible options
• Look for warranties that are transferable and cancellable
• Read the fine print about exclusions and reimbursement limits
• Make sure the contract specifies direct repair payments
• Only use providers backed by insurance companies
• Understand pricing includes profit – negotiate cost

The best extended warranty companies have an AM Best financial strength rating of A or higher which indicates ability to pay claims. Only consider major reputable national providers.

The Bottom Line

While mechanical breakdown insurance and extended auto warranties have similarities, they have important differences in how they work and what they cover. MBI reimburses you for specific breakdowns while warranties arrange covered repairs upfront. Newer lower mileage cars benefit more from warranties while high mileage older vehicles get better protection from MBI. Compare your budget, repair needs, and preferred claims handling to choose the right option.