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Paragon Motor Club Frequently Asked Questions

Before you purchase an extended warranty, be sure you understand what it is that you are buying. We address the questions many of our customers ask here, but feel free to call us toll-free at 1-866-247-3728 with any additional questions.

Click on any of the following or scroll down to see all frequently asked questions and answers.

1. What is an extended warranty?

Extended service contracts are typically referred to as extended warranties. They are most typically a promise to pay the repair facility to replace or repair a covered part and/or component that has failed or worn beyond the manufacturer's tolerances.

There are many differences in extended service contracts (extended warranties). Be sure that you are doing business with a reputable company with a long history of paying claims. Call the warranty company to learn of the services and available coverage. Price is always important but also consider the service at the time that you need it most, during a breakdown or repair. It is at this time that the true value of the company is demonstrated.

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2. Why buy an extended warranty?

In short, because cars break. Most vehicles in today's marketplace come with only a 3 or 4-year warranty from the manufacturer. Cars would become too expensive if manufacturers placed longer warranties on them. And the local dealerships would lose some very important "service business".

Today's vehicles can be very complex and costly to repair. Protecting yourself with an extended warranty from a reputable company can help to avoid a potential budget-destroying repair. No cost, interest free payment plans are available from some warranty providers making the plans very affordable. Purchase from an extended warranty company that offers no-interest payment plans.

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3. Where can I buy an extended warranty?

Most people believe that extended warranties are only offered at their local dealerships and don't realize that they can purchase better coverage at substantial savings directly from a warranty company. Local dealerships use extended warranties as "additional profit." These warranties are typically restricted to being valid only at the location where the warranty was purchased. Warranties purchased through a local car dealership are typically financed in with the vehicle purchase. This traps the consumer into paying finance charges on their warranty purchase and eliminates the ability for them to cancel the warranty for a proper refund.

Buying directly from a warranty company can provide substantial overall savings and freedom from the traditional, high pressure and expensive traps of automobile dealerships. Buy from a company whose primary business is that of providing quality extended warranties at competitive pricing. Do not purchase from companies or dealerships that offer these products as secondary or additional items as you will usually wind up paying too much for substandard products.

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4. When does the extended warranty begin?

Most extended warranties begin from the date of in-service. The date of in-service is the date that the vehicle was originally purchased or reported to the manufacturer as sold or "in-service." It is also commonly referred to as the manufacturer's warranty start date. For example, if you try to purchase an extended warranty on a vehicle that was put in-service two years ago, you effectively lose two years of the extended warranty's term on the date that you purchase that plan even though you still pay full price.

Ensure that you do not lose any time on the term of your extended warranty by selecting an extended warranty that begins from the date of in-service. Select only a plan that begins on the date that you purchase the extended warranty

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5. Where is the extended warranty honored?

Most extended warranties are only honored at certain locations. These locations may include the dealership you've purchased your vehicle from, as well as, its partners and affiliate stores located in your general area. If a breakdown or repair were needed outside of your local area, you would need to pay for the repair upfront and hope to be reimbursed at a later date

It is important that the extended warranty is honored nationwide at any ASE certified facility. This ensures that if you happen to move from your general area, are on vacation or out-of-town and experience a failure, you can still have service provided in an efficient and timely manner with covered repairs paid upfront by the warranty company.

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6. How do I pay for my extended warranty?

Extended service contracts are typically referred to as extended warranties. They are most typically a promise to pay the repair facility to replace or repair a covered part and/or component that has failed or worn beyond the manufacturer's tolerances.

There are many differences in extended service contracts (extended warranties). Be sure that you are doing business with a reputable company with a long history of paying claims. Call the warranty company to learn of the services and available coverage. Price is always important but also consider the service at the time that you need it most, during a breakdown or repair. It is at this time that the true value of the company is demonstrated.

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7. How do I know that my claims will be paid? Is my contract insured?

This may be the most important question you should ask when researching an extended warranty. Consumers purchase an extended warranty to protect themselves against a future budget-destroying repair. Extended warranties are a promise to pay in the future. The financial strength of the company who is obligated to pay valid claims is vital in delivering the peace of mind that claims will be paid today and in the future. Here are a few examples of the different ways companies take to insure contracts:

  • Manufacturer plans - Though on the surface a manufacturer's plan may seem to be the "Safest bet", some manufacturer plans are actually backed by a third party provider. Typically, you can only purchase one of these plans through the higher priced dealer and most times only when you purchase your vehicle. Some dealers mask the higher cost of plans by including them in the finance contract where you actually pay more due to incurring interest charges.
  • Directly Insured plans - Available only through a few extended warranty providers, insurance companies are tightly regulated by the state(s) that they do business in. There is no "Policy limit" on the overall liability on the service contracts they accept. Meaning that once an extended warranty is issued, the insurance company accepts the entire liability per the terms of the extended service contract. They must demonstrate that they have proper cash surpluses to meet future obligations and submit cash surplus and loss data to regulatory bodies between 1 and 4 times per year. Typically, insurance companies have experienced data analysis staff employed and have been insuring service contracts over a long period of time. This allows them to experience loss data over many contracts that have gone full term. In the unlikely event of an insolvency of a properly managed insurance company, an added level of security through the State Guaranty Fund exists. Though contracts backed by an insurance company may not be the least expensive, they may provide the most solid backing and confidence that claims will be paid in the future.
  • Dealership plans - Some dealerships "self insure" by organizing a dealer owned warranty company. Traditionally, plans are only available at the time the vehicle is purchased. Many times a dealer will control the level of claims by forcing a consumer to use only a repair facility owned by the dealer. This creates a bias position whereby the dealer benefits by reducing claims expense. Sort of the "Fox watching the hen house." The regulatory oversight to make sure that the funds exist to meet all future liabilities can be minimal. Most dealers lack the experience to monitor claims losses, establish proper reserve amounts and make pricing adjustments. If the dealership ever sells, experiences financial troubles, or files bankruptcy, this could mean that your future claims can be in jeopardy.
  • Risk Retention Group (RRG) backed plans - Many RRG backed plans offer a "Low cost" extended warranty. RRG backed plans can exist through dealerships, direct-to-consumer marketers and so on. It is important to know if the plan you are researching is backed by an RRG. Risk Retention Groups are not required to undergo the scrutiny of insurance regulators in each state the RRG is doing business in. They can be established with very little capital and because of their size, some RRG's lack the sophisticated staff needed to ensure that proper reserve funds are being deposited to pay future claims. Most RRG's in the automobile service contract industry have been in business less than 5 years. These same RRG's offer 7-year warranty terms meaning that they have not yet experienced 1 full cycle of claims loss data. RRG's are not eligible for the State Guaranty Fund and offer little protection to the contract holder should they become insolvent. To offer the appearance of security, many RRG's purchase reinsurance. If this is the case, remember that the reinsurance is on the RRG and not the individual contract holder. The reinsurance policy also has policy limits that may not meet the RRG total liability. While researching an RRG backed extended warranty, investigate their time in business, policy limits, total liability and volume of contracts administered. Remember that lower price sometimes means higher volume and that higher volume may create future liability that exceeds cash reserves and reinsurance limits with little hope of protection for the consumer.

Purchase only an extended warranty from a company that has properly insured the entire liability of all contracts sold. Check the AM Best rating of the primary (not reinsurance) company backing the plan. Understand that the lowest price may not always provide the best protection in the future. Following these important steps will help alleviate any problem in the future with your claim.

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8. How does the extended warranty provider pay for my claim?

Most extended warranty providers require the vehicle's owner pay for a repair upfront. The consumer is then expected to send the repair order to the extended warranty provider to be reimbursed for the repair. It could take up to three weeks to be reimbursed for these repairs. Occasionally the extended warranty provider will make the repair facility send them a bill. Most service facilities do not do business with extended warranty providers who require them to bill the extended warranty provider for the repair. The reason for this is that it could take three to four weeks for the repair facility to receive payment for a given repair.

Make sure that you select an extended warranty that will pay the repair facility over the phone with a corporate credit card as soon as the repair is completed. This method is the preferred method of repair facilities nationwide and the only way to insure your protection.

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9. What should it cost? How do I know if I am paying a reasonable price for my extended warranty and not just giving a "middleman" additional profit?

Most dealership finance departments are profit centers. The company offering the extended warranty buys the plan from another company and then marks up the price of the plan. Added profits for each company means a higher price for you.

You can save a tremendous amount of money on your extended warranty, without sacrificing the value of the plan. Select your extended warranty from a company that has a long history in the service contract industry who has properly insured all future claims liability. Some so called "Low price" providers are backed by Risk Retention Groups that might not have the financial stability to insure that all claims will be paid in the future. Price is important but too low of a price can mean that not enough money is being set aside to pay tomorrow's claims. With this in mind, you can still purchase from a quality provider, eliminate the middleman and save up to 60 % off the price you would expect to pay at a typical dealership.

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10. Does each repaired component require a separate deductible?

With many extended warranties a deductible has to be paid for each component that is repaired or replaced. This could substantially increase the amount of out of pocket expenses that the customer would be responsible for.

Be sure that if you decide to select an extended warranty with a deductible that you select a plan with a deductible that is paid per service visit and not paid per component replaced or repaired.

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11. Does the extended warranty provider pay full retail price on parts, labor and diagnostic time?

Often times the extended warranty provider will try to negotiate the prices of parts, labor and diagnostic time to save money on repairs. This practice can occasionally cost the consumer time and money. It can also lead to inferior replacement parts being used in your vehicle.

Purchase only from a warranty company that pays full retail price for parts, labor and diagnostic time to prevent these problems from occurring.

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12. Do I have to buy the extended warranty at the time that I buy my vehicle?

This is another misconception. Most dealership plans require that they be purchased at the time the vehicle is purchased. This allows the dealership the highest level of control on the buying consumer where they can charge the most money.

Make sure that the extended warranty company you are researching will allow you to purchase your extended warranty before, during or after the purchase of your new or used vehicle. Some substantial savings can be realized when you purchase directly from an extended warranty company at the lowest mileage possible.

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13. Can I transfer the extended warranty to another person?

There are some extended warranties that have no transfer rights. In the event that you sell your vehicle to a private party, they will not be able to use the benefits of the warranty.

Be sure to select an extended warranty that is transferable. This will enhance the value of your vehicle when selling to a private party and can increase the sale price for your vehicle.

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14. Can I purchase an extended warranty after my manufacturer's warranty expires?

Most plans must be purchased prior to the expiration of the manufacturers warranty. Some extended warranty companies offer the ability to purchase plans even if your vehicle has up to 75,000 miles on the odometer.

The very best extended warranty companies allow you to purchase coverage after the factory warranty has expired. A recent benefit allows a consumer to purchase "New" vehicle plans on vehicles with up to 60,000 miles on the odometer. "New" vehicle plans are less expensive and available with terms up to 7 years or 100,000 miles. Be sure to purchase your extended warranty from a company that has a long-term history and has the ability to offer these cost-saving products.

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15. Can I cancel the extended warranty and receive a reasonable pro-rated refund?

In the event that you do not use the entire term of your extended warranty and would like to cancel, many extended warranty companies do not offer a reasonable method of determining how much money you get back. Most extended warranty companies in the industry use time, miles, and also claims in determining your pro-rated refund.

Ensure that you are receiving a fair method of pro-ration by selecting a plan that doesn't take claims into account when determining the amount of refund.

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16. What happens if the company or dealership that is offering the extended warranty goes out of business?

It's important to know who is obligated to perform under the terms of the extended warranty and who ultimately backs the liability to ensure that all claims are paid. Many companies that sell an extended warranty are actually the ones obligated for the liability of claims. Many times, they do not have the financial stability to pay claims should the reserves prove inadequate and they have not insured the entire liability to pay all future claims. Should the company or dealership go out of business, a consumer may have a difficult time filing or getting a claim paid. Many times the customer is unaware of the fact that the service agreement is between themselves and the company from which they are purchasing.

Make sure that you understand who is responsible for the liability and claims administration under the terms of the extended warranty. A service contract should be insured by a financially stable insurance company that is rated "A" or better by the rating agencies.

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17. Some Companies claim 20+ years in business. Is this is a good sign that claims will be paid in the future?

This will be a long answer but one we urge you to pay special attention to:

Companies that have a long history of paying claims are certainly better than one with no claims experience. However, even a long history of paying claims is no indication of the company's financial strength or ability to pay YOUR claim in the future. Most companies utilize a Risk Retention Group (RRG) to back their extended warranties and insure the solvency of your plan.

All but two RRG's insuring automotive extended warranties have been in business for 5 years or less. These same companies sell 6 or 7 year plans meaning they have not even experienced a full 7-year claims cycle. Worse yet, of the two RRG's that have been in business for 20+ years, the past year has brought some unsettling news. One filed bankruptcy leaving nearly 1 Million people holding worthless paper. The other has had a drastic reduction in their insurance rating from A- (excellent) to B+ (under review) and is currently rated as NR-4 (the company has chosen not to be rated).

You do the math. Let's say that company "A" claims to sell 2,000 contracts per month. Each contract sold has a maximum liability of $25,000 written in the contract. Multiplying 2,000 contracts by $25,000 equals a potential liability of 50 Million dollars a month or 600 Million dollars a year! An RRG can be formed with as little as $500,000 in capital and, according a Risk Retention Guide, the largest has only a 7 Million dollar cash surplus. This leaves little confidence that any RRG can handle even the smallest miscalculation or spike in expected claims.
Unfortunately, companies talk about their A+ rated "Reinsurance" as a demonstration of financial strength. While this may appear to be a safe bet, there is no way for a consumer to know the policy limit. It would be useless to you, as a contract holder, for the company to have a 5 million dollar policy limit on 600 million dollars of liability.

You wouldn't trust your home, health or auto insurance to a small, no name company and there is no reason to do this with your extended warranty. Choose only a company that offers direct insurance backing from a large, well known insurance company. Investigate the front line insurance rating and avoid the sales hype. The initial cost may be a few dollars more but well worth it when you have a claim.

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18. Are there any Independent Agencies that can help confirm a company's reputation?

Yes. This is a very important step in researching your extended warranty. All companies will claim good "after sale" service but you should check independent sources that can verify how many complaints a company receives, the nature of the complaints and whether the company has satisfied the customer. It is also a good idea to check the claims administrator and insurance company's complaint record as these, and not the sales organization, will be the ones whom you will be receiving service after the sale.

Agencies such as the Better Business Bureau and WebAssured offer an unbiased history of reported complaints and whether the company satisfied the issue.

Choose only an extended warranty company that chooses to adhere to best business practices and is proud to display the results through one of these reputable agencies.

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19. What should it cover? Is the coverage a "listed" plan or is it an "exclusionary" plan?

Most extended warranties in this industry tell you what is covered. It outlines a long list of covered components and looks very comprehensive to the untrained eye. The automotive industry is introducing new makes and models with many model specific components. It is impossible to "list" all parts of every automobile in a comprehensive extended warranty.

Exclusionary policies have the highest level of coverage. These plans most closely resemble a manufacturers warranty and assume that ALL components are covered with only a short list of "exclusions" for items such as wiper blades and routine maintenance items. Exclusionary policies by their very nature are much more comprehensive than listed

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19. What about hours of operation? Can I get assistance from a live agent when I need it most?

Most warranty companies are only available during normal business hours. Unfortunately, breakdowns don't always occur at convenient times possibly causing a safety risk.

Customers drive their vehicles all hours of the day and may need assistance at any time. Make sure that your extended warranty provider is open 7 days a week for your convenience

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