Auto Repair Insurance: What Is It, and Do You Need It?
All drivers are required to carry auto insurance, which provides liability protection for property damage and personal injuries. It can also be configured to finance the cost of vehicle repairs if you are in an accident. However, it does not usually extend to major repairs unrelated to collisions, such as transmission breakdowns or engine problems. This is where an optional form of coverage known as auto repair insurance comes in.
Insurers provide these policies under several different names, including car repair insurance and mechanical breakdown insurance. They are generally inexpensive, boosting their appeal to vehicle owners who want to cover all possible bases. However, they are also subject to certain limitations and other considerations, which you should weigh in your decision-making.
What Does Auto Repair Insurance Cover?
Mechanical breakdown insurance is intended for major repairs. It can’t usually be used to cover the costs of routine maintenance or services related to wear and tear. Instead, it provides financial protection in the event that your vehicle has a critical failure or breakdown.
Policy details vary among insurance providers, but most companies cover a similar set of core vehicle systems and components. These usually include:
- Air conditioning and heating
- Computerized systems
- Electrical systems and components
- Exhaust system
- Fuel system
- Vehicle cooling system
You should also understand what most car repair insurance policies do not protect. Coverage doesn’t usually extend to:
- Routine maintenance, such as tire rotations, tune-ups, oil changes, and other fluid changes
- Regular wear and tear, such as worn tire treads and brake pads
- Cosmetic damage
- Damage caused by negligence or improper vehicle care, such as failing to carry out scheduled oil changes or using diesel fuel instead of gasoline
- Corrosion (rust)
- Pre-existing damage that occurred before you acquired the vehicle or purchased the policy
Auto repair insurance will also not cover:
- Collision damage
- Parts or components that are under warranty or recall
- Components not related to the vehicle’s mechanical operation (such as emblems or vehicle trim)
- Components protected by the automaker’s in-house repair program
How Are Mechanical Breakdown Policies Structured?
The first thing you should consider is whether your vehicle even qualifies for car repair coverage. Like other aspects of this type of insurance, eligibility guidelines vary among providers. That said, insurers usually limit these products to new vehicles with lower mileages.
At the more restrictive end, your vehicle may qualify if it is 15 months old or newer with 15,000 miles or less. At the more inclusive end, you can find providers who will cover cars up to seven years old with about 70,000 to 75,000 miles on them. Also, check to see if the coverage automatically expires once you exceed a certain mileage level. Some providers configure their policies to become invalid once your odometer passes a specific limit, even if your vehicle remains within the acceptable age range.
Other restrictions may exclude certain makes and models of vehicle, usually those known to have a spotty reliability record. Some insurance companies also require customers to carry a certain level of regular auto insurance, such as comprehensive coverage.
Finally, most mechanical breakdown policies carry mandatory deductibles, which are usually in the $100 to $300 range. However, the American Automobile Association (AAA) notes that typical car repair bills usually add up to about $500 or $600. Repairs to the components and systems typically covered can easily total into the thousands of dollars, making the deductible easier to swallow.
Is Auto Repair Insurance Worth It?
Unfortunately, there is no universally correct answer to this question. It depends on the vehicle and your personal financial situation. To start an analysis, ask yourself this question: if your car suffered a major mechanical failure necessitating $3,000 to $5,000 in repairs, would you be able to cover the cost out-of-pocket? If not, how willing are you to assume that risk, considering the age, mileage, and reliability record of the vehicle you own?
Next, consider that you also have other options. You could establish a contingency fund to cover car repairs, contributing a sum like $100 per month. Over time, you could save up a decent amount of money that will ease the financial sting of a major fix, even if its cost exceeds your fund’s limit. Alternately, you could purchase an extended warranty from the vehicle retailer or manufacturer if the car qualifies. These plans offer similar protections for a comparable cost, albeit with different terms and limitations.
If you do elect to purchase car repair insurance, here are some questions you should answer before finalizing your policy:
- Are you allowed to choose your own mechanic, or do you have to take the vehicle to an insurer-approved repair shop?
- Does the coverage overlap with any warranties or insurance policies you already hold?
- Does the policy offer any additional benefits such as rental reimbursement, trip interruption, or roadside assistance coverage?
- Is the policy transferable to a new owner if you sell or give the vehicle to someone else?
Summing It Up
Auto repair insurance offers optional financial protections that safeguard vehicle owners from expenses related to major mechanical breakdowns. They do not cover collision damage, cosmetic damage, routine maintenance, or regular wear-and-tear, but they can save you hundreds or even thousands of dollars in the event of a serious vehicle system failure.
These policies are relatively inexpensive, making them worth considering if you are not in a financial position to cover significant repair costs out-of-pocket. However, they are usually available only for relatively new and lower-mileage vehicles, and the protections they provide sometimes overlap with regular auto insurance policies and extended manufacturer or dealer warranties.
If you do elect to go ahead with car repair insurance, review policy details carefully and shop around with multiple providers. Some insurers include notable restrictions and limitations in their fine print, which may impact the level of value you stand to extract from the policy in the event you need to make a claim.