These days, drivers keep their cars longer than ever, as the average age of the 240.5 million cars and light trucks in the U.S. is almost 11 years. And since that’s an average, you can assume there are plenty of cars older than that riding down American highways.
A car that lasts for years is great, but the older it gets, the more likely it is to face mechanical trouble. The Toyota Tercel I drove for more than a decade regularly racked up repair bills of up to $900 until I finally realized I could save more money by simply buying a new car. Financially savvy owners with deep savings accounts and emergency funds are prepared for unexpected problems, but those of us who haven’t thought ahead can quickly wind up stuck with significant bills.
The solution? Mechanical breakdown insurance.
What Is Mechanical Breakdown Insurance?
Also known as auto repair insurance, mechanical breakdown insurance differs from collision coverage in that it pays for repairs unrelated to an accident, even after your warranty has expired. It doesn’t cover normal wear and tear on your car, but it does pay for specific repairs as long as they’re named in the policy. Auto insurance companies, car dealers, and financial institutions all offer this valuable peace of mind.
As with most insurance policies, it’s up to you to choose from various levels of coverage. Your premium, which you can pay monthly or upfront, is calculated based on the term of the coverage, the condition and quality of your car, whether it’s new or used, and the miles you’ve logged.
Minimum coverage typically includes work on the following:
- Engine parts, such as the oil pump or water pump
- Electrical components, such as the alternator
If you prefer a more comprehensive plan, you can choose one that covers issues with steering, air conditioning, and your fuel system.
In addition to repair bills, mechanical breakdown insurance also typically pays for:
- Towing (policies vary regarding long-distance tows)
- Rental car coverage
- 24-hour roadside assistance
- Lock-out service
Cost of Mechanical Breakdown Insurance
Depending on the type of car you own, its age and condition, and the level of coverage you select, you could pay as little as $300 to as much as several thousand dollars per year. Some car financiers allow you to bundle the cost of this coverage into your loan payments, but be careful as this may cost you more than keeping a separate car repair policy. Deductibles are generally in the range of $100 to $200, but some policies offer no-deductible plans if you’re willing to pay a higher premium.
Unlike standard car insurance, your premiums are based only on your car and the policy you choose, not on your driving record, credit score, or other personal characteristics. Just be sure to examine your policy for hidden charges, such as claims fees, which may make the cost of repairs more expensive.
Who Should Buy Mechanical Breakdown Insurance?
Auto repair insurance isn’t just for drivers of older cars. If you drive an expensive car with complex mechanical systems and special features, you could face costly repair charges should your car encounter trouble.
The important questions to ask when considering mechanical breakdown insurance include:
- What Coverage Do I Already Have Under My Car’s Warranty? There’s no sense in paying twice for the same insurance.
- How Long Do I Plan to Keep My Car? If you’re buying a car you intend to keep for just a year or two, you probably don’t need extra protection. However, many insurance providers allow you to transfer your policy to a new owner should you sell your car.
- Do I Have an Emergency Fund to Cover Car Repairs? If you don’t, a mechanical breakdown policy is certainly a better option than charging repairs to a high interest credit card.
Pros & Cons of Auto Repair Coverage
Deciding whether to purchase this specialized type of insurance depends on the condition of your car and the state of your finances.
- Peace of mind that most repairs are covered, depending on your policy
- Extra services such as towing and rental car may be included
- Billing disputes are handled directly by the insurance company
- An automatic built-in monthly budget for your auto repairs
- Older cars that need more repairs are covered, as well as newer cars just out of warranty
- Can be costly and unnecessary if your car rarely needs repair
- You may not be able to use your own mechanic
- You may require a repair that’s not covered
- You can create your own emergency fund instead
- There may be hidden charges, such as claim fees, processing fees, and taxes
How to Choose Mechanical Breakdown Insurance
The market is replete with options when shopping for an insurance policy. The first step is to decide how long you want your car covered and which services and features are most important to you. If you have specific concerns about a particular part of your car, you can buy limited coverage for that system. However, be aware that attempting to predict what is or isn’t going to break down is a risky game – if you’re wrong, you could be out significant money.
When comparing policies, ask the following questions:
- Will I Have to Pay Anything Upfront? Most policies pay for the repair minus a deductible rather than reimbursing you. Some insurance companies only work with car dealerships to make the repairs, while others allow you to choose your own mechanic.
- Will I Have to Use a Specific Repair Shop? If you have a mechanic you like, make sure the policy covers his services. Don’t choose a policy that requires you to travel to an inconvenient location.
- Are All Labor Costs Covered? Make sure your policy covers labor in full or at least contributes a high enough rate to pay the lion’s share of typical labor charges in your area.
- How Does the Claims Process Work? You don’t want to get stuck waiting months for your reimbursement or waiting for permission to have a repair completed. Ask the insurance company’s customer service department about its process, and gauge what you’re told against customer reviews online.
- Are There Any Processing Fees? Make sure you know the complete cost – including all fees, however insignificant or unlikely – of each policy before you pull the trigger.
While you might be tempted to purchase the cheapest policy you can find, it may not be worth it if labor cost reimbursements are too low, or if essential elements of your car aren’t covered. The last thing you want to do is to pay for insurance protection and also have to pay a big repair bill. You may be better off putting the cash that you were going to spend on your insurance policy into your emergency fund to pay for repairs yourself. This way, if your car never breaks down, you’ve got money in the bank that you otherwise would have given to an insurance company.
Do you have auto repair coverage? If not, would you consider getting it?