Why would you need that? After all, you already have a manufacturer's bumper-to-bumper warranty tucked snugly in the glove compartment.

Welcome to the confusing world of warranties.
 

Understanding bumper to bumper

In the first place, bumper to bumper doesn't really mean bumper to bumper. These contracts do cover major parts of your vehicle, such as the engine and transmission. But wear and tear items such as brakes, brake linings, tires, fan belts and light bulbs are on your dime, and no one will contract with you to cover them.

Also, American manufacturers typically offer three years or 36,000 miles for their initial coverage, and many imports offer four years or 50,000 miles. But that means one or the other, and the warranty is void when you hit either the mileage or time limit.

So your three-year bumper-to-bumper warranty doesn't really cover the car bumper to bumper, and it may not last three years.

Some manufacturers extend the powertrain warranty further, giving drivers five years or 60,000 miles for failure of parts lubricated by flowing oil.

So should an intelligent buyer throw good money into still more coverage?

"It depends on your appetite for risk". "If I recommend the most reliable car out there, you could still have problems with it."

Tipping the odds in your favor

All warranties are designed using actuarial tables, which means the manufacturer's initial coverage translates to, "This car isn't likely to break on our watch," says Fred Uno, a vice president at CarsDirect.com. The cost of the extra coverage gives you a clue toward others' repair woes after the honeymoon. The more expensive it is, the more likely you are to add your mechanic to your Christmas card list.

"If you're the type who wants everything handled easily when something goes wrong, the warranty would be for you. If you don't mind working on the car yourself or shopping price, pass," says Randy Downs, VP of Warranty Direct in New York. 

Keep in mind that while the extended warranty on repairs doesn't kick in until the bumper-to-bumper warranty expires, perks like Free 24x7 roadside assistance, rental cars and hotel lodging if you're stranded often do take effect immediately.

Second, look carefully at how long you intend to own the car and your average commute. For example, if you plan to trade in at three years, the warranty seems silly on the surface. But drivers who rack up 18,000 miles a year to get to the office will void the bumper-to-bumper terms in 24 months.

Weigh in the facts that analysts forecast the cost of parts and labor will increase as much as 40 percent within five years, and that about one-third of all vehicles experience failure in a given year, warns Randy Downs, VP of Warranty Direct in New York.

Dealer or third-party?

Unfortunately, your decisions don't end when you decide to buy an extended service warranty. You have to decide which warranty to buy.

Dealerships have been known to sell third-party-backed warranties, so always check the name of the company standing behind the agreement. You want to hear it's an A rated insurance company.

Dealerships usually welcome warranty repairs because they're compensated work. And few consumers know that manufacturers commonly give incentives to these mechanics to get the work done right the first time. On the other hand, in an effort to avoid revealing expensive repairs, some unscrupulous dealers will skimp on the diagnostic tests.

Bottom line: Anything you purchase over and above the car is a potential profit center to the dealer, and it's in business to make money. According to a March 2003 report by Consumer Union's Southwest Regional Office, consumers pay a 300 percent markup on dealer warranties purchased at the dealership. In one case, the car buyer overpaid by $2,600. It's far wiser and cheaper to purchase the warranty direct from the warranty company.

Indeed, one manufacturer's extended program was priced $800 and $1,000 higher than what third-party companies offered. Third-party carriers use a wider range of repair shops as well, so you aren't stuck finding dealerships.

Then there's the stability issue -- many such companies belong to underfunded risk retention groups instead of true property and casualty insurance groups, so they don't fall under your state insurance commissioner's watchful eye. One Internet-based company left 52,000 customers holding the bag when it went into receivership. Customers weren't aware of the crash until they filed a claim. Check to see that the company has been around and will be there when you need it says Randy Downs, VP of Warranty Direct in New York.