Should You Get Mechanical Breakdown Insurance or an Extended Warranty?

Image shows two people going over the costs associated with mechanical breakdown insurance. Text reads: "Quick facts: mechanical breakdown insurance. Bought as an add-on to regular car insurance to cover potential mechanical problems. Ranges anywhere in price from $300 to a couple thousand dollars, depending on year and model of car. Typically covers components like engine parts, brakes, and transmission. Does not cover routine maintenance or damage from car accidents."

Image by Julie Bang © The Balance 2020

When you buy a new or used car, you might be given the option to purchase an extended warranty or mechanical breakdown insurance. Here's what you need to know about your options when you want to buy coverage for mechanical problems that may come up in your car.

Key Takeaways

  • When you buy a new or used car, you might be given the option to purchase an extended warranty or mechanical breakdown insurance (MBI).
  • MBI is coverage that pays for car repairs unrelated to an accident, and it can be purchased through your car insurance company.
  • MBI coverage does not cover routine maintenance or damage from car accidents, and it may have other exclusions as well.
  • You can buy MBI as a separate add-on to your regular insurance policy, but it can't be used as a replacement.

What Is a Mechanical Warranty?

A mechanical warranty is an extended warranty offered by your car dealership that usually applies to mechanical breakdown or parts. It may be offered for any number of years, depending on the plan you decide to go with and how much you want to spend.

Mechanical Warranty and Mechanical Breakdown Insurance

Many people do not realize that they may have more than one option when it comes to buying coverage against mechanical breakdown. There may be advantages to purchasing a mechanical warranty depending on how long you are going to own your car—or even if you don't plan to own it very long—but want to resell it in a few years. Mechanical warranties are available through a dealer or by buying mechanical breakdown insurance through an insurance company. It's a good idea to review what the insurance company offers to understand what option will give you the greatest advantage and can save you money. 

What Is Mechanical Breakdown Insurance?

Mechanical Breakdown Insurance (MBI) is coverage that pays for car repairs unrelated to an accident that can be purchased through your car insurance company instead of an extended warranty through the dealer.

Like an extended warranty, mechanical breakdown insurance coverage pays for repairs to a car above the manufacturer's warranty. It may also provide additional coverages as part of the insurance package, depending on the insurance company. Mechanical Breakdown Insurance can be added as an endorsement to your auto policy. Mechanical breakdown insurance coverage may provide advantages over an extended warranty on a car because it is offered through an insurance company and is regulated by the insurance industry for standards and claims.

5 Reasons to Buy Mechanical Breakdown Insurance (MBI) Coverage Instead of an Extended Warranty

There are several reasons you may want to consider buying MBI coverage.

  • May include more parts and systems than most dealer warranties
  • Will likely cost less than at the dealership
  • You can get your car repaired wherever you want
  • Can be transferable to a new vehicle owner if you sell your car, or you can cancel it at any time and not lose the money
  • You do not have to pay a big lump sum payment upfront and pay interest if the cost gets bundled into your auto loan

List of What MBI Covers

You can get several levels of mechanical breakdown insurance coverage. Typically the basic coverage will protect the following:

  • Engine parts, ex: oil pump, water pump
  • Drivetrain
  • Transmission
  • Exhaust
  • Brakes
  • Electrical components ex: alternator

Some mechanical breakdown coverage offers protection for:

  • steering
  • air conditioning
  • fuel system

What Is Not Covered?

Mechanical breakdown coverage does not cover routine maintenance or damage from car accidents.

To make the best decision on what coverage you will buy, remember that "wear and tear damage" may be excluded. Find out what classifies as wear and tear and what is classified as a breakdown. This determination can make a difference in which product or insurance you take.

Typical Exclusions

  • Tune-ups
  • Suspension alignment
  • Wheel balancing
  • Filters
  • Lubrication
  • Coolant and fluids
  • Spark plugs
  • Brake pads and linings
  • Brake shoes
  • Tires

Does Car Insurance Cover Mechanical Breakdown?

No, regular car insurance does not cover regular breakdowns or maintenance. You can buy Mechanical Breakdown Insurance separately or by an endorsement to your car policy. Note that MBI does not replace regular car insurance. It is an add-on.

You still have to purchase your basic car insurance to cover minimum state car insurance requirements as well as additional coverages like comprehensive, collision, or other endorsements.

How Much Does MBI Coverage Cost?

The cost of Mechanical Breakdown Insurance is usually less expensive than the extended warranty at the dealer. The price varies based on the make, year, and mileage of the car, so coverage could be as inexpensive as $30 but could be as much as a $100. The coverage usually also requires a deductible of between $250 to $500 per incident. Unlike regular car insurance underwriting, which takes into account your driving record and many other personal factors, sometimes even including your credit rating, mechanical breakdown coverage is only based on the year and mileage of your car. The calculation of price does not take any of your personal information into consideration. 

Advantages of MBI vs. Extended Warranty With a Car Dealer

Mechanical Breakdown Insurance can provide you with flexibility in both payment terms and how long you keep the coverage. Breakdown insurance is handled like an insurance policy. It can be better for you financially because it does not force you to pay a large lump sum at the time you purchase your vehicle.

It also does not force you to finance the coverage with your auto loan like an extended warranty would. This separate purchase may save you money on interest. 

Car dealerships often offer products like extended warranties or Guaranteed Auto Protection (GAP) coverage at the dealership and put a lot of pressure on people to buy them on the spot. Car dealerships can make a lot of money on these added sales, so it makes sense that they will be offering them to you. You should always check with your insurance representative first. It helps to compare these products. You should never buy these products at a dealer under pressure, take your time to figure out what makes the most sense for you. 

Is Either Worth It on a New Car?

It depends on several factors. If you are already decided on buying an extended warranty, then the Mechanical Breakdown Insurance is a good option for you to consider. If you don't know whether you will need the extended coverage, then some research about your car will help:

Look up ​​Consumer Reports or other car reviews that will indicate what you can expect from the performance of your car over time. Usually, there is data available that can help you understand what problems you might expect in the future. You may also find some car manufacturers have a more reliable mechanical operation than others. These are factors that will come into play while trying to determine if it is worth spending the money on an extended warranty or mechanical breakdown insurance.

Consider how long you expect to keep your car. Weigh the cost of the coverage against the cost of anticipated repairs. For example, if you will only keep your car for three years and it is a new car, you are less likely to encounter major mechanical issues (not covered by the standard warranty) than if you will own the car for 10 years.

Ask the dealer for examples of cases where a mechanical breakdown would apply to your circumstances in the length of time you plan to own your car.

Should I Get MBI?

Insurance is coverage to protect you from unexpected costs. If you have enough money to pay for unexpected repairs yourself, then you can self-insure by not purchasing an extended warranty or mechanical breakdown insurance coverage.

Questions to Ask Before Purchasing Mechanical Breakdown Insurance

  • What are the exclusions of coverage?
  • What will the deductible be? How is the deductible applied in a claim?
  • How to make a claim or get compensated?
  • Is coverage transferable if the car is sold?
  • Are there any amounts that have to be paid upfront?
  • What costs are covered?
  • Are all labor costs covered?
  • What is the definition of wear and tear?
  • Are you free to use the repair shop of your choice? What are the authorized or approved repair shops?
  • What happens if you are traveling in your car and you have a problem?
  • How long can you renew your coverage? For example, some insurance companies will not renew coverage once you have reached 100,000 miles or seven years.

How to Save

In addition to the flexibility to pay less upfront and cancel whenever you decide you do not need the coverage anymore, some mechanical breakdown insurance policies offer additional perks and benefits. These perks can also add up to more savings. Ask your insurance representative or insurance company to explain these to you. The coverage varies by the insurance company.