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."

The Balance / Julie Bang

When you buy a new or used car, you might be faced with many options. One that most car shoppers don't think about ahead of time is whether to purchase an extended warranty or mechanical breakdown insurance. Both can help with costs for car issues that may come up in the future, but each serves a slightly different purpose. Here's what you need to know about your options when you want to protect against the cost of fixing mechanical problems that may show up down the line.

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 pays for car repairs that are not related to an accident, and it can be purchased through your car insurance company.
  • MBI does not cover routine maintenance or damage from car accidents, and it may exclude other events as well.
  • You can buy MBI as an add-on to your standard insurance policy, but it cannot be used to replace standard car insurance that you need by law.

What Is a Mechanical Warranty?

A mechanical warranty is a contract offered by your car dealership that backs up the value of your purchase. It provides an extended guarantee on certain parts or functions after you drive the car off the lot, and usually applies in the case of mechanical breakdown. 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 (MBI)

Many people do not realize that they may have more than one option when it comes to buying coverage to protect against the cost if your car suffers a mechanical breakdown. There are many reasons to purchase a mechanical warranty, and the decision about these perks depends on how long you plan to own your car. Even if you don't plan to own it very long but want to resell it in a few years, a warranty can add value.

To purchase a mechanical warranty, you can ask the car dealer at the time of purchase, or you can buy a mechanical breakdown insurance policy through an insurance company. It's a good idea to compare what the insurance company offers to know which of these options will give you the greatest value for the best price, and save you money in the long run. 

What Is Mechanical Breakdown Insurance?

Mechanical Breakdown Insurance is coverage that pays for car repairs unrelated to an accident. This type of coverage is can be purchased through your car insurance company, rather than like through the dealer, as with an extended warranty.

Like an extended warranty, MBI coverage pays for repairs to a car above the manufacturer's warranty. It may also provide extra coverages as part of a larger package, though this will vary by company. MBI can be added as a rider, or add-on clause, to your current auto policy. In some cases, MBI coverage may protect more than an extended warranty on a car because it is offered through an insurance company, and this industry is highly regulated when it comes to standards and claims.

5 Reasons to Buy MBI Coverage Instead of an Extended Warranty

There are many reasons you may want to buy MBI coverage. To name a few:

  • MBIs may include more parts and systems than most dealer warranties.
  • MBIs will likely cost less than the products sold at the car dealership.
  • With an MBI you can get your car repaired at the shop of your choice.
  • You can transfer an MBI to a new car 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 for an MBI, and you will not be charged for the extra hitch in interest if the cost gets bundled into your auto loan.

What Does MBI Cover?

There is a wide range of MBI products to choose from, from one that covers the bare bones parts you need to drive, to the high-end version that covers the full scope of your car's parts and functions. For the most part, the basic MBI policy will cover the following:

  • Engine parts (e.g., oil pump, water pump)
  • Drivetrain
  • Transmission
  • Exhaust
  • Brakes
  • Electrical components (e.g., alternator)

Some mechanical breakdown coverage offers protection for:

  • Steering
  • Air conditioning
  • Fuel system

What Does MBI Exclude?

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

To make the best choice on what type of coverage you will buy, note that "wear and tear damage" may be excluded. Before you buy, be sure to find out what counts as "wear and tear" and what counts as a breakdown.

Typical Exclusions

Again, you may be able to purchase coverage above and beyond the standard offer, and so your MBI contract might differ, but most exclude the following list of items:

  • Tune-ups
  • Suspension alignment
  • Wheel balance
  • Filters
  • Lubrication
  • Coolant and fluids
  • Spark plugs
  • Brake pads and linings
  • Brake shoes
  • Tires
  • Glass (windows and windshield)
  • Wiper blades

Does Car Insurance Cover Mechanical Breakdown?

Standard car insurance does not cover routine breakdowns or maintenance. You can buy MBI on its own or as a rider to your car policy. Note that MBI does not replace standard car insurance that your state mandates. It is an add-on.

You still have to purchase your basic car insurance to cover minimum state car insurance requirements, and for extras (such as to cover for damage from collisions, extreme weather events, other drivers, etc.) you're on your own.

How Much Does MBI Coverage Cost?

The cost of an MBI policy is almost always less than how much you would be charged for the extended warranty at the dealer. The price varies based on the make, year, and mileage of the car. It could be as cheap as $30 or as much as $100 per month. This is just the basic fee though; keep in mind that an MBI will also have a deductible of between $250 to $500 per event. The good news is that unlike most types of car insurance underwriting, which takes into account your driving record and many other personal factors, sometimes even your credit rating, the price of MBI coverage is only based on the year and mileage of your car. The calculation of price does not rely on any of your personal information. 

Advantages of MBI vs. Extended Warranty With a Car Dealer

MBI 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 your budget 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 as part of the larger car deal and put a lot of pressure on people to buy them on the spot. They can make a lot of money on these added sales, so it makes sense that they would push them on you. You should always check with your insurance agent 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. 

Do I Need MBI or a Warranty if My Car Is New?

You can opt not to purchase either of these products and just pay for repairs or breakdown out of pocket. Whether or not this is a good choice for you depends on many factors. If you are set on buying an extended warranty, then MBI is a good bet. If you don't know whether you will need the extended coverage, then it will help to conduct some research about your car.

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 decide if it is worth spending the money on an extended warranty or mechanical breakdown insurance.

Look up ​​Consumer Reports or other car reviews to get an idea of how your car might perform over time. Many publish data that can help you predict what sorts of problems you might expect in the future for your make and model.

Also, think about how long you plan to keep your car. Weigh the cost of the coverage against the cost of future repairs. For instance, if you will only keep your car for three years and it is a new car, you are less likely to be faced with any major mechanical issues (or those that are not covered by the standard warranty) than if you own the car for 10 years.

Don't be afraid to ask the dealer for cases where a mechanical breakdown would apply to your case in the length of time you plan to own your car.

Should I Get MBI?

Insurance is coverage to protect you from costs you don't expect or plan for. If you have enough money to pay for surprise repairs out of pocket, then you can avoid purchasing an extended warranty or mechanical breakdown insurance coverage.

Questions to Ask Before You Buy MBI

  • What are the exclusions of coverage?
  • What will the deductible be? How is it used in a claim?
  • What is the process for making a claim or getting compensated?
  • Can I transfer my coverage if the car is sold?
  • Are there any amounts that have to be paid upfront?
  • What costs are covered?
  • Are all labor costs covered?
  • How do you define "wear and tear"?
  • Am I free to use the repair shop of my choice? If not, what repair shops must I choose from?
  • What happens if I have a problem with my car during travel?
  • Is there a limit to how long I can renew my coverage? (For example, some insurance companies will not renew coverage once you have reached 100,000 miles or seven years.)

How to Save on MBI

In addition to the flexibility to pay less upfront and cancel at any time, some MBI policies offer additional perks and benefits. The details will vary, but most often they will add up to more savings. Ask your insurance agent to explain these to you.