Here at Car Talk, we’ve got a lot of articles about vehicle service contracts, or “extended warranties” as they’re commonly, if not exactly correctly, called. Those articles cover common concepts that you’ll need to know before you buy no matter where you live, but there’s one state in the Union that bears special coverage: California.
Why California? Because along with having more earthquakes than any other state, California also has some of the most extensive laws targeting vehicle service contracts. California carefully regulates who can sell extended warranties, what those contracts must and must not contain, and even in some cases what they can be called. You might find yourself shopping for “mechanical breakdown insurance” instead of “extended warranties” if you live in California. More on that later.
Because of the strict laws, some service contract companies choose not to do business in California, but if you’re a Golden Stater who really wants an extended warranty, you do have options. We’ve rounded up a few of them to get you started.
Toco is a California-based company which sells extended warranties in most states. A relative newcomer to the service contract scene, Toco was founded in 2013 and says its mission is to simplify the contract process while educating consumers. And to its credit, there’s a lot of information on the Toco website which explains how the industry works, and even how service contracts and MBIs are not “extended warranties.”
Read our full review of Toco Warranty Corporation here.
autopom! has been in the vehicle service contract business for over a decade. As a multi-administrator broker, the company can present several different companies to choose from when buying an extended warranty. The company works to educate consumers, with resources on its website from explanations about how the industry works, and a helpful blog, to checklists for buying used cars, selling cars, test drives, and more.
Read our full review of autopom! here.
For years CARCHEX was a vehicle inspection service. They’d inspect a vehicle you were thinking about buying to find any flaws before you plunked down money on it. They still do that, but in 2004, the company also began selling extended warranties. Since then, the company has risen to be one of the most recognizable names in the industry.
Read our full review of CARCHEX here.
California has an unusually strict set of laws governing the extended warranty field. The state breaks extended warranties into two categories: Mechanical Breakdown Insurance, and Vehicle Service Contracts. California requires specific licensure for companies selling either product, and also for companies administering either one.
The state policies licensure vigorously. Unlicensed companies selling service contracts in California have gotten cease and desist orders from the state’s Department of Insurance. Because the rules in California are more strict than many other states, some companies have chosen not to offer their products in California. Those that do offer contracts often have special ones that are only sold in that state.
Mechanical Breakdown Insurance in California is a lot like a vehicle service contract anywhere else, except that it’s regulated as insurance. That means any company selling or administering MBI must be a licensed insurance company. It also means pricing for MBI contracts is regulated by the state’s Department of Insurance just like any other insurance policy. That puts limits on the profits MBI sellers and administrators can make.
But MBI is the only extended warranty product that can legally be sold in California by any business other than a car dealership, which is why you’ll only see mechanical breakdown policies offered by any third-party company operating legally in the Golden State.
A Vehicle Service Contract is a dealership-only product in California. Only licensed car dealerships can sell them. Anyone else trying to sell one in the state can find themselves facing felony charges. Unlike MBI policies, VSCs are not considered insurance, and there’s no regulation on how much the dealership can charge for a contract. But VSC administrators do have to be licensed providers, and copies of plan contracts must be filed with the state.
There are two types of VSCs sold in California. Regular VSCs are sold by dealerships on behalf of a licensed Vehicle Service Contract Provider, or VSCP. Dealer-Obligor VSCs are very similar, but unlike a regular VSC where a VSCP is the company obligated to pay for covered repairs, a Dealer-Obligor contract obligates the dealership to pay for them.
From the perspective of the consumer, there isn’t much difference between a VSCP contract and a Dealer-Obligor contract. Both work in virtually the same way - the only difference is which company pays when repairs are needed.
Aside from the requirement that they only be sold by dealerships, VSCs most closely resemble extended warranties you might buy in any other state.
First consider where you’re buying the coverage. Is it from a dealership, or a website or phone number? If it’s the latter, you’re buying Mechanical Breakdown Insurance, which is legally an insurance policy and subject to insurance regulations including price approval from the state. If it’s from a dealership, it’s probably a Vehicle Service Contract. As there are no pricing restrictions on VSCs, this option may be more expensive, or provide less coverage for the same price.
Next, consider the reputation of the company you’re considering buying from. We’ve given you a head start with our reviews of some of them, but check other sources as well. The company should provide you with a sample contract on request - and sometimes it’s available to anyone on the company’s website. Read that contract carefully; It dictates what benefits you’ll get from buying the policy.
Consider what is covered by the contract. Also determine what is not covered. No policy, no matter how comprehensive, covers everything on your car. Every contract excludes coverage for certain parts, and sometimes those parts are expensive, such as catalytic converters. Remember, if it isn’t an exclusionary contract, and something isn’t listed as covered, then it’s not covered.
Part of checking up on a company when you’re buying an extended warranty in California is to make sure that they’re properly licensed. You can visit the state’s Department of Insurance website to verify that both the seller and administrator of your MBI policy are licensed.
Finally, as with buying a service contract in any state, you should consider what your needs are. How reliable is your car? How likely is it to break down, and how much do repairs cost for your car as compared to other vehicles? If you have a very unreliable car, or you spend a lot of time worrying about potential repairs, a VSC or MBI policy might be a good idea. On the other hand, if you don’t sweat future repairs and you drive something that’s very dependable, you might be better off depositing the money you’d pay for coverage into an interest-bearing savings account to be used for unexpected repairs.
See Car Talk’s overall recommendations for Best Extended Warranty Companies here.
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CarShield is not available in California.
Yes, with caveats. Sellers and administrators must be licensed, and only dealerships may sell VSCs, while only insurance companies may sell MBIs.
Maybe. It depends on how reliable your car is, and how risk-averse you are.
You can negotiate anything! Dealership markups on VSCs are often very high, so there’s a lot of wiggle room to work with.
The number one consumer complaint to the FCC in 2020 was the infestation of robocalls advertising extended warranties. Government guidance says most of these calls are scams. If you want MBI or a VSC in California, you should buy it from a licensed seller.
The best way to get a good price is to compare offers. These are some popular options...