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Comments
Dennis
On your 5 year/100,000 mile warranty you have used up 1.5/5 = 30% of the time factor but 19/100 = 19% of the mileage so they would prorate on the basis of time.
tidester, host
SUVs and Smart Shopper
The best I can tell you on a BMW is buy a plan from one of your local BMW dealers. At least then you will know they will honor it and you have someone to yell at if something does not work out. There should be lots of wiggle room on the price, so I would not accept their first offer (or offers).
Dennis
Park the $1900 in a bank account and use it only for repairs. You'll probably still have that money (plus interest) in 3 years.
Not unless they make BMWs better than when I had mine
Dennis
One other thing to consider, many states can not collect sales tax on this if you purchase from a dealer in another state, but if you had purchased when you bought you Taurus you probably would have paid state sales tax. I'm in Tennessee and our rate is 9.25%, so a $1000 purchase in state would add $92.50 in additional cost for sales tax.
Since 1980, I've owned three Town Cars and the only major expense of repair was on the current 1994 to replace some parts in the differential. All other costs were related to maintenance. The repair cost to the differential was a lot less than buying EW & applying their respective deductibles.
I believe when you buy a quality automobile, you don't need any EW, but if you buy a marginal quality vehicle, perhaps an EW is to be considered.
Previous to 1980 and going back to 1967, we purchased two Ford wagons, but no EW on either. Our 66 Mustang GT, 134,000 miles never had an EW either.
1. Never use your precious, hard-earned money to pay for an expensive and unreliable car.
2. Only buy the best value, or the lowest cost and highest quality combination.
3. Never buy Extended Warranties. A reliable car doesn't need one, and you should only buy a reliable car.
On The Reliability Scale where would you place the 2005 Jaguar XJ8 L ?
The style is appealing, but the nearest dealer/service is in the next state.
Because you're paying a lot less for an extended care warranty, of course the maximum benefit is a lot less. That doesn't make it less of a value. Is Fit collision insurance less of a value than the Lexus insurance because the maximum benefit is less? Of course not.
Let's look at two separate ratios to explain things more clearly. The ratio of a car's depreciated value over it's collision coverage premium is one ratio. The other ratio is the ratio of a car's largest repair expense over it's extended warranty cost. These are analogous measures of value for collision coverage and extended warranties. The largest claim over the premium cost is shown below.
1. (Car Value)/(Collision premium)
2. (Largest repair bill)/(Extended warranty cost)
The point that I'm trying to make can be summed up in one equation as shown below:
(Largest Claim = Car Value)/(Collision premium) is much greater than
(Largest Claim = Largest repair bill)/(Extended warranty cost)
for newer vehicles.
For any particular vehicle, you need to analyze the above equation very carefully. This equation is the mathematical explanation and proof of my argument.
Whether it's a Lexus or a Honda Fit, Ratio number 1 is always greater than Ratio number 2 for newer vehicles.
A Lexus extended warranty will cost more than a Honda Fit extended warranty, but a Lexus will have potentially larger repair bills than a Honda Fit. Therefore ratio 2 will stay relatively constant.
A Lexus collision premium will cost more than a Honda Fit collision premium, but a Lexus costs way more than a Honda Fit to replace. Therefore ratio 1 will stay relatively constant.
BUT, WE ARE COMPARING TWO DIFFERENT RATIOS, AND I AM STATING THAT RATIO NUMBER 1 IS MUCH GREATER than RATIO NUMBER 2 FOR NEWER VEHICLES and THEREFORE THE VALUE OF COLLISION INSURANCE IS GREATER THAN THE VALUE OF AN EXTENDED WARRANTY.
WHEN RATIO 1 BECOMES EQUAL TO RATIO 2 AS THE CAR DEPRECIATES, IT IS NO LONGER A GOOD VALUE AND JUST LIKE EXTENDED WARRANTIES, I NO LONGER NEED COVERAGE.
I pretty much agree with your summary, although I'd rephrase it a bit: if you're handling your finances like a grown-up - if you've got money in the bank & a handle on your debt, then you don't need an extended warranty. But if you're living from paycheck to paycheck - if you're one step ahead of the sheriff & generally clueless when it comes to money management - then an extended warranty might not be a bad idea for you.
Just to be clear, many (most) people who live from pay check to pay check DO handle their finances like grown ups, know about money management and are not scofflaws on the run. You might have worded that a little better to avoid possible misinterpretation.
tidester, host
SUVs and Smart Shopper
Sorry for the harsh words, but I firmly believe that you should budget for car repairs just as you should budget for the other stuff that you need. That means setting something aside from each paycheck so that you can cover unexpected expenses.
My parents have a very healthy income, and they choose to buy the manufacturer-backed extended warranty every time. That pretty much "fixes" the cost of their repair bills for the duration of their vehicle ownership, and they don't even have to think about it. Something seem wrong? Take the car in. They're old, and they just prefer not to have to consider the cost of long-term problems with the car.
For some people, this peace of mind and level of simplicity is just what they're looking for. Others prefer to pay as issues arise. The decision to purchase/not purchase an extended warranty isn't always as simple as bad vs good money management.
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If the engine blows, needing replacement, it will cost a lot more for the luxury car than the sub compact to replace it. If you can afford the luxury car you can afford the replacement w/o an EW because the cost is not catastrophic to you who has the Bucks in the first place.
Putting the amount of the EW premium into an Aggressive Growth fund will profit you more in the long run.
So, what price is Peace of Mind? The premium you paid plus the gain you didn't get in the stock market.
That's your metric. We all have our own.
tidester, host
SUVs and Smart Shopper
Then, one day, I pointed out that when she buys an EW, someone else got to earn interest on her money. (She pays cash for her cars & cash for the service contracts.) Like many retirees, she's income-oriented & wants any dollar not needed for current living expenses to be earning interest. But she had never stopped to think of the interest income that she was giving up when she bought a service contract. As soon as she did, she soured on the whole idea & turned down the offer of an EW when she bought her next car: a 2000 Camry stripper which has required nothing beyond routine maintenance. She's thinking of replacing it when the 2010 Camry hits the showroom - she likes a new car every 10 years - but she won't buy a service contract. In fact, she recently talked a friend out of buying one.
No argument. But it's still worth noting that a fundamental, time-honored axiom of casualty insurance is that you should purchase protection only against catastrophic losses & self-insure against everything else. That's why I pay extra to get the best homeowners coverage available in my area. I saw a small electrical fire do over $100K damage to my neighbor's house in less than 20 minutes. A loss of that magnitude would cripple me, & I'll pay whatever is necessary to protect myself from that.
But I can handle a $2K auto repair bill. After I've paid it, I'll be lousy company for the rest of that week, but I won't have to postpone retirement or skip my vacation. I've made it a point to build up an emergency fund to cover this stuff.
Incidentally, the largest repair bill that we've actually paid during the last 20 years was less than $1500. Keep in mind that we keep our cars for a long time: 1 for over 13 years & another for almost 12. So we have lots of experience maintaining cars after the factory warranties have run out.
If the EW for a certain model costs $1,000 at dealer cost then you can be sure that the warranty company knows the average repair for that make and model will be less than $1,000 over the life of the EW. So you buy in KNOWING the odds are not in your favor - you are not likely to come out ahead. If you were likely to come out ahead, the warranty company would just raise the price until they made money.
That said, a lot of folks just like the peace of mind aspect of it and they often roll the cost in on top of the car so it is just a "little more each month" and frankly they probably do not have the cash on and to invest against future problems. True, if they put away that "little extra" each month they would have some money saved by the time the new car warranty ran out, but they know they will not do it - so they buy the warranty. Logic, investment, law of averages, Consumer Reports, etc - nothing will stop someone from buying an EW if they feel better with one.
However, I am not sure the purpose of this forum is to endless argue the pros and cons of an EW - folks that check in here usually want to buy one already. The purpose should be to steer them away from 3rd party warranties with their long histories or trouble and onto factory backed plans and to help them find the best places to get these at a discount. Maybe there is a "why you should not by an EW" forum here, if not maybe the mods could start one and then everyone that wants to argue the merits could go and argue about it at length - and leave the EW forum for folks that have questions about where to buy one and what to pay. Everyone calling folks who want to buy one "stupid" or whatever is sure to make many of them not bother to post lest they be attack for their desire to buy a warranty.
Dennis
Insurance including EW is NOT a gamble. It is a transfer of risk to a carrier who has the earned premiums invested in order to pay claims. In addition to paying claims, there are management costs plus very high commissions to the dealer's F & I guy. So - what's your metric?
Well, as a long-time lurker & occasional participant in this discussion, I've noticed that quite a few people come here to ask if they should buy EWs at all. This question is often raised by folks who have just bought or are about to buy a car with a reputation for reliability - Toyota or Honda, for example - & they're wondering if the purchase of an EW is the best use of their money. It doesn't hurt to let them know that there are other - and, to my way of thinking, better - ways to manage repair costs. That's certainly within the scope of this forum.
In any case, only the codes thrown are stored in the OBDII computer as far as I know. There COULD be other black boxes in the car that we can't access without dealer equipment. I know some cars have black boxes like this.
In any case, factory powertrain warranty only covers the "internally lubricated parts" of the engine. So if a coolant hose or the radiator sprang a leak and the car overheated and was still driven on until the engine seized, they are going to deny the claim anyway. Something covered caused by something not covered - is not covered. They usually find ways to weasel out of covering stuff even if you did nothing wrong, and in this case you did so most hope is lost.
I would get it towed to the dealer and just see what they say. If asked about what happened, don't lie just tell them it quit running.
Dennis
(Largest Claim = Car Value)/(Collision premium) is much greater than
(Largest Claim = Largest repair bill)/(Extended warranty cost)
for newer vehicles.
For any particular vehicle, you need to analyze the above equation very carefully. This equation is the mathematical explanation and proof of my argument.
I'm sorry, but speaking as a mathematician, that's hardly a mathematical proof... if you've ever seen a real proof, you would know what I mean.
While I get the gist of what you're saying, you've over simplified it and weighted it to greatly benefit the collision ratio. I won't hide the fact that I'm a pricing actuary for an EW producer, so some of you may think I'm biased (maybe), but to really compare apples to apples, you would need to:
1) use the premiums over a comparable time period: If you have a 5-year EW, you would also need the premium paid over 5 years for the collision coverage.
2) use the average value of the vehicle over that same time period.
3) use total claims, not one time greatest claim. While the largest claim on the collision would be a one-time occurrence, the largest repair bill does not preclude more of the same large repair bill(s) in the future (ask your shop how long it guarnatees replacement transmissions and rebuilt engines).
4) use frequency of claims. While I don't specialize in auto collision pricing, I had had been told in the past that the chance of a total loss claim is about 1% a year; that amounts to about 5% over a 5 year period. Compare that to the approximately 30% chance of a powertrain claim over $500 (based on my company's data, ~3M contracts) over the same period.
I'm not saying that this will completely reverse your findings, just that this will make the ratios much less disproportionate.
I have and I do.
to really compare apples to apples
As a mathematician I am surprised you would even go there. There are many ways of comparing apples to oranges not the least of which are topological and chromosomal properties.
this will make the ratios much less disproportionate
That's an interesting observation. Is it possible for a proportion to be disproportionate? But then it is not a true proportion. It's not even an equation. It is an inequality.
Just kidding of course but I do agree with the thrust of your arguments.
tidester, host
SUVs and Smart Shopper
In a game of chance, your 'chance' doesn't add up over time. If a slot machine's chance of a big payout is, say, 3%. You have a 3% chance each time you pull the lever. Five pulls does not equal a 15% chance of a big payout.
I agree, that is a high percentage, but it is what it is for us. Our data goes back about 25 years, but this was based on a study that we did on contracts from 1998 through 2004 (we didn't want to go too far back, but we also needed contracts that were mostly completed). Some manufacturers had much higher frequencies, some had much lower, so it depends on the mix of business on what any other company's overall frequency would be.
Strictly speaking, since frequency is #claims divided by #contracts, it wouldn't be right to say 30% of our contracts have at least one claim over $500. Let's say you have 100 contracts and 30 claims, but 2 of those claims are on the same contract. From your perspective, that's 29 contracts with claims over $500, but to us that's still a frequency of 30%.
It is a 14.1% chance and 150 plays will get you to a 99% chance of a big payout. But I doubt the probability of a hit on one play is as large as 3%.
tidester, host
SUVs and Smart Shopper
You're right, I calc'd it for only one win, not at least one win... my bad.
It's a common misconception that a machine that hasn't paid out in awhile is 'due' for a jackpot. I think you're right-the chance on a slot machine is more like 1.5%.
No one here has even suggested otherwise.
tidester, host
SUVs and Smart Shopper
(Largest Claim = Car Value)/(Collision premium) is much greater than
(Largest Claim = Largest repair bill)/(Extended warranty cost)
for newer vehicles.
For any particular vehicle, you need to analyze the above equation very carefully. This equation is the mathematical explanation and proof of my argument.
I'm sorry, but speaking as a mathematician, that's hardly a mathematical proof... if you've ever seen a real proof, you would know what I mean.
While I get the gist of what you're saying, you've over simplified it and weighted it to greatly benefit the collision ratio. I won't hide the fact that I'm a pricing actuary for an EW producer, so some of you may think I'm biased (maybe), but to really compare apples to apples, you would need to:
1) use the premiums over a comparable time period: If you have a 5-year EW, you would also need the premium paid over 5 years for the collision coverage.
2) use the average value of the vehicle over that same time period.
3) use total claims, not one time greatest claim. While the largest claim on the collision would be a one-time occurrence, the largest repair bill does not preclude more of the same large repair bill(s) in the future (ask your shop how long it guarnatees replacement transmissions and rebuilt engines).
4) use frequency of claims. While I don't specialize in auto collision pricing, I had had been told in the past that the chance of a total loss claim is about 1% a year; that amounts to about 5% over a 5 year period. Compare that to the approximately 30% chance of a powertrain claim over $500 (based on my company's data, ~3M contracts) over the same period. - riskadverse
I somewhat agree with statements 1 and 2 and 3, but not 4. Let me first explain statement number 1. When I wrote the equation, I implied collision premium means the total cost of premiums during the time in which the extended warranty coverage applies. Keep in mind that when you buy an extended warranty, it only covers the time after the factory warranty to the end of the extended warranty. The rest of the time you have double coverage, so the factory warranty is good enough.
For example, most car manufacturers have a 3 year 36,000 mile factory warranty, so if you bought a 5 year 80,000 mile extended warranty, the extended warranty would only cover year 4 and year 5 or 36,000 miles to 80,000 miles, whichever comes sooner. In other words, the extended warranty covers the full 5 years or 80,000 miles, but you're really paying for year 4 and 5 or 44,000 miles.
Therefore, in order to make an apples to apples comparison, in this example, you would need to compute the collision premium paid during those 44,000 miles, and the average depreciated value during those 44,000 miles. Let me clarify my equation for this example.
(Total Collision Claims Paid during EW period)/(Collision Premium during EW period) is greater than
(Total Repair Claims Paid during EW period)/(Extended warranty cost)
for newer vehicles.
The EW period in this example is (44,000 miles after the factory warranty ends) or (2 years after the factory warranty ends) whichever comes sooner.
In response to statemnt 3, the largest claim on the collsion coverage is NOT a one time occurance. A car can be totaled many, many times, and each time that it is totaled, most insurance companies will give you the depreciated value of the car to buy another one. Some even give you a new car replacement, NOT the depreciated value. So you're paying the collision premium to have this coverage.
I totally disagree with statement number 4.
4) use frequency of claims. While I don't specialize in auto collision pricing, I had had been told in the past that the chance of a total loss claim is about 1% a year; that amounts to about 5% over a 5 year period. Compare that to the approximately 30% chance of a powertrain claim over $500 (based on my company's data, ~3M contracts) over the same period.
First let me state that a Honda VTEC engine has NEVER had a warranty claim since the inception of VTEC technology. This is based on proven statistics and has been documented in many magazines and articles. In general most powertrains are not likely to breakdown between year 4 and year 5 or 44,000 miles in this example. Total collision claims are larger than the total cost of repair claims.
A 30% chance of a powertrain claim over $500 seems very inaccurate, unless you're looking at Land Rover, GM, and Ford contracts.
Take a look at Toyota, Lexus, Honda, Acura contracts, and I guarantee you that the chance of a powertrain claim over $500 during the EW period is less than 1%.
A 30% chance of a powertrain claim over $500 seems very inaccurate, unless you're looking at Land Rover, GM, and Ford contracts.
Take a look at Toyota, Lexus, Honda, Acura contracts, and I guarantee you that the chance of a powertrain claim over $500 during the EW period is less than 1%.
The powertrain includes the transmission - a weak spot in the 6 cyl Hondas and Acuras. Based on the fact that Honda had to extend factory warranty coverage on 5 years' worth of TLs, 6cyl Accords and Odysseys, I'm willing to bet the failure rate was over 1%.
I have owned a number of Honda products - 60% of which have had a major repair between 50-100k (AC, electrical). So, an EW could still be nice.
The dealer has presented Easy Care to us as an option. We intend to keep the car for 10 years,if we are lucky. So, we asked for a quote on a 84 mo-100,000 bumper to bumper zero deductible. It is $3910. We are retired and normally only put about 7500 miles on the car. But perhaps we need to figure 10,000 in the future because we hate flying anymore.
We had Warranty Direct on our other Mercedes and they were ok..A few minor battles. They do not offer an 84-100,000 warranty for this car. I have not read too many good things about Warranty Direct here though....
I've read over the terms of the Easy Care policy and one thing disturbed me. It is unclear who has to keep the car serviced properly..It refers to the "Vehicle's Manufacturer" as the agency that must keep the car properly serviced at the prescribed intervals..
So, I called and asked Easy Care if that means I am married to the local Mercedes dealer or any Mercedes dealer, all with much higher service rates or can I take it my own local repair shop, who exclusively repairs Mercedes? My guy is much cheaper for the oil changes, 50,000 mile maintenaces, etc. He use to work for the local dealer!
I cannot get an answer on this from Easy Care. They say I need to take that up with the dealer, who is selling the policy? Huh? I called the dealer and spoke to the guy handling these warrantuies and he had no answer for me either! He said he'd get back to me..So, far it's been two days.
Any comments would be greatly appreciated. I am brand new to this site.
I looked this up. You can find some of the details here http://www.ftc.gov/bcp/conline/pubs/buspubs/warranty.shtm. The Magnuson-Moss Warranty Act specifies the requirement for warranties and service contracts, a quick reading indicates to me that you would be buying a 'service contract' .
Ask the dealer about the Magnuson-Moss Warranty Act and how the Easy Care covers the requirement of that law and see what reaction you get.