Tire Insurance: Myths And Facts About Road Hazard Policies

Insuranceóitís everywhere. One can insure just about anything. Are tires an investment one needs to insure? Tire insurance, also called a road hazard policy, road hazard warranty, or tire reimbursement plan, is a rapidly growing industry in the automotive world.

Tire warranty plans pay in full or in part for the replacement or repair of damaged tires and/or rims from ìroad hazards.î Road hazards are defined as pot holes, debris, nails, wood, and other hazards found in the road. Curbs, sidewalks, and stone walls are not road hazards. This is an important distinction to consider when deciding if tire insurance is right for you (discussed further ahead).

Tire plans last for a specific period of time and tire wear tread-depth. Some plans last 2-3 years. Others can last 5 years or 60,000 miles. Several plans come with fixed amounts of coverage: $500 per year up to 4 years. Many contracts require three years of law school to comprehend. In terms of tread depth, a tire is usually considered worn out (and thus the plan null and void) at 2/32 to 3/32 of an inch.

Another important distinction is in the type of plan.

Tire reimbursement plans are just what they say. You, the plan holder, will be reimbursed after the claims process is finalizedóusually 2-8 weeks. There is an out-of-pocket expense. These plans are often sold by new car dealerships. The prices can range from $300 to $600 dollars.

Road hazard policies operate similarly to reimbursement plans. However, some tire insurance providers, in partnership with the repair facility, may have a direct-pay relationship. Thus, there would be no out-of-pocket expense, except for applicable deductibles, and items not covered in part or in full. These plans are primarily sold by tire dealers and repairshops. The prices range from $10 to $30 per tire. They also can be based on a percentage of the cost of the tire: usually 12% to 15%.

Both types of plans have a number of variables, requiring a magnifying glass to read the fine print. Also, many are pro-rated warranties, covering only a percentage of the cost of the tire based on its wear.

Claims and Coverage:
Depending on the plan, claims are initiated by the repair shop. The process is fairly smooth, although there can be a significant delay from the provider for authorization. This delay may be an hour or an entire weekend. This means that youíll have to ìokî the tire replacement, and then hope itís authorized for the full amount, or drive on your spare.

Some plans offer national coverage either among their service facilities or from other repair centers. Claims procedures will vary. Others only provide local coverage, or coverage at the selling facility.

Limitations:
Tire insurance does not mean that everything is covered. Pro-rated warranties are based on the wear and tear of the tire. You may get 75%, 50%, or only 10% coverage depending on the tread-depth. Youíll pay the remainder. While there are plans that offer full coverage, even these have limitations, or they may conflict with a repair shopís policies.

For example, many plans allow for a maximum of $30 to mount and balance one tire, and a maximum of $15 to repair a tire. However, sport tires often have significantly higher mounting and balancing feesóupwards of $50 per tireóand tire repair prices can exceed $90. There are also discrepancies on the tire and rim prices themselves, which in the end, may have to be supplemented by the service customer.

Although there usually is not an issue with the latter given the competitive market, the service centerís price mark up may be unacceptable to the plan provider. In this case, the service center needs to lower the price or you, the service customer, need to pay the differenceóor go somewhere else. This does happen!

Rim Prices and Repairs:
Rim replacement is becoming less frequent. With the high cost of aluminum wheels and sport wheel packages, tire insurers have opted to have them repaired. Repair will only be done if the rim does not hold air. What this means is that even if the rim is warpedóenough to cause a vibration and even premature tire wearóthey wonít replace it. Rather, they will send it out to be straightened and repaired.

Rims are replaced only if the damage is so extensive that the new tire, when mounted on the rim, wonít hold air. However, even in this case, especially if itís an expensive sport wheel, they may still attempt to repair it.

Repairing rims is a bad option. While some rim repair is acceptable, badly warped or damaged rims will in no way ever be the same.

Alignments:
If a car hits a road hazard hard enough, such as a pot hole, itís wise to have the alignment checked. Road hazard policies and tire reimbursement plans do not cover alignments. The service customer will have to pay for this procedure.

Road Hazard Protection Positives:
Some plans include tire rotations, wheel balancing, and nationwide coverage.

Myths:

1) “Can I pop all 4 tires and get a new set of tires?”

You can try. But this type of claim will trigger a number of red flags with the insurer. The policy holder will likely send out adjusters and/or require photographs. You will also have a difficult time explaining how a ìroad hazardî caused all 4 tire pop.

2) “New tires come with a road hazard warranty.”

New tires do come with a warranty by the tire manufacturer. However, it only covers defects in workmanship. New tire warranties do not cover punctures or damages from external sources. This is why “road hazard” protection is being pushed.

New tires are rarely defective. If there is a problem, itís usually noticed when balancing the tire. Or, there is a drivability concern such as vibration or noise. If thereís a defect itís generally caught right away, and the tire swapped out.

3) “Itís so cheap; itís a no-brainer, right?”

Actually, the experts don’t agree with this statement.

The Economics of Tire Warranties:
An article from the Washington Post by Terence OíHara explains the economics of extended warranties and purchase protection plans in general. It is quite fitting for road hazard warranties. He writes:

“The decision to buy an extended warrantyÖdefies the recommendations of economists, consumer advocates and product quality experts, who all warn that the plans rarely benefit consumers and are nearly always a waste of money.

ë[Extended warranties or purchase protection plans] make no rational sense,í Harvard economist David Cutler said. ëThe implied probability [of having an issue with the product] has to be substantially greater than the risk that you canít afford to fix it or replace it. If youíre buying a $400 item, for the overwhelming number of consumers that level of spending is not a risk you need to insure under any circumstances.í”

In short, road hazard warranties are a waste of money. Donít insure that which you can afford to replace.

Numbers Game and Slim Chances:
Like all insurance, tire insurance plans are a numbers game. However, this is a game you have a 98% chance of losing. Insider statistics show that the percentage of claims paid out by providers is as low a 2%.

Curbs:
Another interesting note is that a lot of tire damage is caused by curbs. Curb damage is not covered under most road hazard policies. High granite curbs with sharp edges slice through tens of thousands of tires per year.

You Wonít Notice:
Many people donít even notice tire damage. Other than to see if the tires are holding air, who ìreallyî looks at tires? Tires are subject to a whole host of external influences which cause bubbles, slices and gouges.

Despite the potential dangers of damaged tires, the damage very often does not translate into any noticeable drivability issue. The point is that if you donít notice any tire damage you canít benefit from the coverage.

Research Shows:
Those raving about the benefits of a road hazard policy are the actual folks in the industry who stand to benefit from the sale. Theyíll argue that itís so cheapóonly $10 to $20 per tire. Even so, for four tires, thatís $80 based on the ìpossibility,î the ìchance,î of damaging a tire that meets the repair/replacement requirement protocols.

Auto Insurance:
If a rim and tire has incurred significant damage, itís quite likely that other problems have resulted as well. The first is that the vehicle may have been jarred out of alignment. Secondly, hub bearings, front end components: tie rods, spindles, ball joints, and a variety of other components may have sustained damage. In this case, auto insurance, which you are already paying for, will pay for everythingóbrand new.

Free Road Hazard Warranties:
Many tires come with road hazard warranties FREE. In other words, in an effort to secure retailers, many tire distributors provide service centers FREE road hazard insurance. Some shops pass this on to their tire customers, others sell them. Ask if the tire ìcomesî with a road hazard protection policy. If not, request that one be provided at no additional charge. Itís worth a shot.

Also, some car manufacturers provide road hazard warranties FREE of charge for 12 months or 12,000 miles. If youíre buying a new car or even used, ask that the dealer provide a complimentary road hazard policy (after all the wheeling and dealing is done, of course), and just before you commit.

“Whatís the best road hazard policy?”
Money in “your” bank account.

Auto Repair Insurance: Extended Warranties ó Myths And Facts

How much insurance does one need? You have the big four: home, health, life, and car insurance. Then thereís a second category, which starts getting a little hazy with credit card insurance, purchase protection plans, fraud insurance and more. Extended warranties, also called extended service contracts, or extended service policies fall into the mist of this second category.

Extended warranties are supposed to pay (in full or in part) for specified repairs for a specific period of time after the expiration of the factory warranty. They can be a great value. They can also be a significant waste of money. It gets quite foggy in the details. What exactly is covered? How long? How much? Are there hidden charges?

There are numerous extended warranty companies and an even wider variety of warranty packages available: silver, gold, platinum, platinum-plus, and a host of other confidence-building words. Whatís the best plan, and are extended service contracts worth the money? Extended warranties, like life insurance policies, are a numbers game. Theyíre a gamble. You pay $2500-$4500 for a 2 year, 100,000-mile protection plan and hope that you get at least that back in warranty repairs. The provider on the other hand, hopes to pay out less than it insured.

There are three major types of plan providers: The manufacturer, the dealership/third party, and third party providers. Each one has its assets and liabilities (discussed ahead).

What exactly is covered in an extended service plan? As mentioned above, whatís covered depends on the package purchased. Some plans only cover the power train: the mechanical components of the engine, transmission, and rear-end. Others cover the power train plus some electrical components. Still others cover electrical, advanced electrical, and computer components. Some only cover whatís listed in the contract. This is called a ìStatedî or ìNamedî contract. This means that if itís not stated, itís not covered. Some cover bumper-to-bumper, similar to a manufacturer warranty, except trim pieces, upholstery, exterior components, cosmetic items, and a number of other exclusions.

Never before has the adage, ìThe devilís in the details,î been so applicable.

Manufacturer Extended Plans:
Extended service plans from the manufacturer are the best in terms of coverage, convenience, and quality. Coverage is similar to the warranty while the vehicle was under its original factory warrantyówith similar exclusions stated above. The billing is direct, meaning you donít have to pay out-of-pocket, except for a deductible, if applicable. Quality is great too, as an extended warranty from the manufacturer will only use factory parts. They also have money, so thereís less risk of bankruptcy.

The down side of manufacturer extended service plans is that they are not cheap. These plans are generally the most expensive, require low mileage standards, and necessitate servicing your vehicle at a dealer for coverage.

Dealership/Third Party Plans:
Extended warranties from a dealership are actually from a third party insurer. These providers are ìgenerallyî reputable, but not always. However, if there is an issue (such as the warranty provider filing chapter 11, which is quite frequent in the extended service contract business), the dealer ìmayî step in to cover any repairs that would have been covered under the defunct plan. Also, claims are easier: billing is direct because the dealership has a working relationship with the provider, and there is usually agreement on price.

Some dealers set up their own ìinternal extended warranty,î which is honored by the selling dealer. This is rare, and should not be confused with a manufacturer warranty. Important: extended warranties are often passed off as ìmanufacturerî warranties. Theyíre not. This is a sales trick. Also be aware that there is a significant mark up, as the dealership is merely acting as the middle man. Lastly, extended warranty companies often go bankrupt without warning.

Third Party Plans:
These plans are called third party plans because they are outside the responsibility of the manufacturer and the service center performing the repairs (unless thereís a working relationship with a repair shop as stated above).

There are hundreds of extended service contract companies. Some have good reputations, some donít. Third party plans are frequently sold by used car dealers. You may also receive an official looking notification in the mail stating that your warranty is expiring, and directing you to call an 800 number ASAP. This is a marketing tactic by an independent warranty provider. Despite the ìofficialî appearance of the postcard or envelope, itís not from the manufacturer. Manufacturers do not send out reminders about warranty expirations.

Given the wide-variety of third party plans there are numerous red flags.

1) Claims: Extended warranty companies will be quick to tell you that filing claims is easy, and that the service center gets paid immediately via a credit card. Thus, thereís no out-of-pocket expense for you. However, the warranty company canít dictate a service centerís policies. Some service centers will only accept payment from the repair customer. Thus the burden is on the repair customer to fill out the forms, contact their warranty company, and await reimbursement via check, which can take 2-8 weeks.

It is the service centerís responsibility to contact the extended warranty company to let them know whatís wrong with the vehicle and to check coverage. This process can take anywhere from 20 minutes to 20 days, sometimes more, depending on the degree of repairs and especially the amount. (See $1000 and Adjusters ahead)

Service centers and extended warranty companies frequently battle over the ìfairî price of repairs. Many repair shops no longer negotiate, and just state the price, leaving the contract holder (i.e., the service customer) responsible for the difference.

2) Rentals: Rental coverage is a great benefit. However, there are fixed rates and time limits. In other words, the warranty company is not going to pay to have you drive a Mercedes-Benz, even if you drive a Benz. Rental allowances range from $25 to $35 per day. Also, rental coverage is based on the number of hours it takes to repair the vehicle, NOT how long your car has been at the shop.

3) $1000 and Adjusters: Repairs that approach $1000, or that require a significant amount of work, will be cause for the warranty company to call in an adjuster to confirm the diagnosis. This will delay the repairs by a minimum of 24-48 hours. It may cost you additional money when an adjuster is involved. You may be charged to have your vehicle pulled back into the shop for inspection, as well as for the time spent with the adjuster.

4) Tear-down Charges: In many cases, an extended warranty company will require that a particular component be taken apart for inspection to determine if the repair is indeed needed and covered. This puts the service customer in a very awkward position. The customer will have to authorize potentially hundreds of dollars of tear-down expense in the hopes that the repair is covered. If itís not, the customer is out the hundreds in tear-down PLUS the actual repair. This does happen!

Common Myths:

1) “Extended warranties cover maintenance services and brake work.”

No. Extended warranty plans do not cover maintenance or wearable items. Brake pads and rotors are wearable parts. Maintenance such as coolant, brake and transmission flushes, tune-ups, services, oil changes, bulbs, wipers, and more are not covered.

2) “They told me itís bumper-to-bumper, so it covers everything right?”

Wrong. Not even a factory warranty covers everything. When pitching the sale for the extended warranty, one is very often lead to believe that he or she will have nothing to worry about. This is just not true on so many levels. For example, if your bumper falls off itís not covered.

3) “I donít have to pay anything, right?”

Wrong. Despite the claims of 100% coverage, there are many factors involved. The labor rates, labor hours, diagnostic times, parts prices, and machine work are just a few items that often conflict with a service centerís policies. Some extended contracts only pay a maximum of $55 per hour, and only allow one half hour for diagnostic time. This is generally unacceptable to the service center, as labor rates have skyrocketed to over $100 per hour at many dealerships, and average $75 at local shops. Moreover, with the complexity of todayís vehicles, diagnostic time is at a premium. The customer pays the difference.

4) “If I have an expensive problem, I can just purchase an extended service contract.”

Itís unethical, but itís an option many attempt. However, most service contracts have a minimum time requirement before the first claim can be filed: usually three months. Also, many contracts require that your vehicle be inspected by a service center to check for pre-existing conditionsójust like life insurance.

5) “My contract lasts up to 100,000 miles.”

Only if the time limit doesnít run out first. All extended warranty plans have a time limit. For example, a typical contract will state that the vehicle is covered for two years or 100,000 miles, which ever comes first. During the sales pitch, however, the emphasis will be on the 100,000 miles, not the time.

6) “If my car breaks, it gets fixed like new.”
Actually, depending on the contract, an extended warranty company can insist on installing remanufactured or even used parts.

Items commonly not covered by extended warranties:
ï Any component with a pre-existing condition
ï Any component related to a Technical Service Bulletin (TSB)
ï Many components that has been updated by the manufacturer
ï Extra components necessary ìdue to manufacturer updatesî to complete the repair
ï Trim pieces: molding, cup holders, dashboard, console, body parts, glass
ï Many accessories: radios, DVD players, TVs
ï Many expensive electronics: climate control units, navigation assemblies

Service contract positives:
Some service contracts are transferable, and may thus increase the resale value of a vehicle. Many come with trip interruption reimbursement, towing and 24-hour road side. Some plans can also be financed, or have E-Z Pay Plans. Others offer a money-back guarantee.

What should you do?
Youíll get lots of advice about doing the research, comparing plans, and reading the fine print. This is all sound advice. But what about doing the math?

Letís say a plan costs $2500 for 2 years or 100,000 miles, whichever comes first. To break even youíll need a minimum of $1250 per year in covered repairs, excluding regular maintenance. Remember covered is the vital word here.

Another way to break it down is to anticipate having to pay $104.17 per month over the next two years in ìcoveredî repairs. Do you want to take that bet?

What could happen?
You could double your money or more in repair work. You could conceivably get a new engine and transmission (or used ones anyway). You could also easily spend $2500 for a service contract, and still have to pay another $2500 for repairs, which for a variety of reasons, were not covered under your plan. Now youíre out $5000.

Alternatively, you could keep the initial $2500. In many ways all an extended warranty does is prepay for repairs. You could stick the money in the bank and collect interest. Then you could withdraw the money for repairs as needed.

Another consideration thatís rarely discussed is the cause of the problems. Many car repairs problems are the result of wear and tear, neglected maintenance, physical damage, or acts of Godósuch as flood damage. None of this is covered. The gamble only covers failed components.

If the vehicle youíre driving does cost $2500 to $4500 in repairs due to outright failed components, is it a vehicle you even want to consider keeping? A vehicle that needs this kind of repair work due to mechanical, electrical, or computer failures may not be worth it. The $2500-$4500 would be better spent on an upgrade to a quality vehicle rather than insuring a lemon.

Thereís no question that auto repair is expensive, and even quality cars break from time to time. But do they breakdown to the tune of $2500-$4500? Thatís a hefty bet on a ìpossibility.î

Terence OíHara from the Washington Post makes an excellent assessment about extended warranties in general. He writes:

Öextended warranties play upon a basic human trait to avoid loss, even if it means sacrificing a possible future gainÖthe gain is all the other things of value that a consumer could buy with the money that was spent on a warranty

Whatís the best plan?
Money in your bank account!