When Dr. Carl Sagan was ask the question, is there life on other planets, he responded by qualifying his answer. “Yes there is. However, there are billions and billions of planets and solar systems in the Universe and the chances of life developing as we know or could even recognize are infinitesimal.” Dr. Sagan also noted that there are too many variables to calculate and that life would more than likely develop in a completely different fashion then we as humans could associate.

I was ask the question the other day by a reader, “Do you think I can get a good warranty for less money from Company X, aren't most of these contracts the same anyway?” It reminded me of Dr. Sagan's answer to the life on other planets question. I had to pause for a moment and qualify my answer.

“Yes you can. However, there are hundreds and hundreds of companies on the Internet and the chances of finding a good warranty that is properly administrated and insured without getting burned are infinitesimal.” After sharing my thoughts of Dr. Sagan's comments, we both enjoyed a good laugh.

In fact warranty companies can have more variables in their development than the building blocks of life in the Universe. To coin a phrase, all warranty companies are not created equal. So what can you do to eliminate most of the variables? The answer may not be what you want to hear, because it means you will have to do some research. But, if you follow these guidelines you can protect yourself from a bad investment.

But they were listed on the top page of Google! Just because a company is on the first page of Google, Yahoo or MSN doesn't make them reputable. Search engine rankings have nothing to do with the quality or financial stability of the company listed. In fact you would be interested to know that one of the top ranked warranty companies has one of the worst Better Business Bureau records of anyone on the Internet. So don't be fooled by search engine rankings, they can be very misleading.

Does size matter? Many companies on the Internet are small brokerage firms that represent many Insurance Providers. Some of these companies only employee a few people. This can be confusing to consumers who mistakenly think the broker is the warranty company. All too often consumers will check the BBB record of a broker and stop there. When in fact they need to check out as much information on the actual provider as possible. It is very important to ask for as much information as possible about the warranty provider and their affiliates. This is the company you will sign a contract with and their background information and financials are a must.

But the sales representative said it was covered! These words will ring in your ears when you have a claim denied because of a non-covered part. Simply put, was it in the contract? Never take anyone's word as a promise of coverage. I don't care if they email it to you a thousand times and promise you their first-born child for insurance, don't believe it! Make sure that you read the contract for coverage, if it becomes confusing or you want a second opinion, we recommend that our clients take a copy to their local mechanic. These guys have a unique insight into the language and coverage offered in service contracts and can help point you in the right direction.

But the service contract was re-insured by a big company. Re-insurance has become a hot button in the industry over the last few years. The fall of Warranty Gold and N.W.I.G. set off a domino effect that will be felt for several years to come. Essentially, re-insurance agreements are between the warranty companies and their administrators as a fail safe in the case of financial instability. However, the details of the agreements are closely guarded and are not available to the general public. Typically re-insurance is to protect the warranty company not the customer. Don't depend on this to protect you. A fully insured service contract is always better than a re-insured contract. Fully insured companies have to meet certain guidelines in order to operate. They must also have effective capital reserves as well as assets to administrate claims. This is not true of re-insured companies. In fact Warranty Gold was still selling service agreements after they had filed for bankruptcy.

Who is AM Best and what do they mean to me? AM Best is an Independent Rating Service. They monitor a company's performance to rate their financial stability. Here's the bottom line about ratings. If you are buying a service contract make sure that the company or administrator listed on the contract is rated (A+, A, A-) by AM Best, then you will know they're a sound company to purchase from. Note; don't just go to AM Best to see if the company is listed, view their rating. You will have to take a moment to sign-up, but this is information you need.

Is this a Vehicle Service Contract, M.B.I. or an Extended Warranty? Just last week I had a customer ask me this question. I answered and told him it was a Service Contract. At that point he became very quiet and said, “You mean it's not M.B.I.”? I answered no and he proceeded to hang up on me. I never heard from him again. This gentleman had already committed to purchasing a service agreement from our company, but evidently someone convinced him that Mechanical Breakdown Insurance was better. The fact that he was from Georgia, where an M.B.I. program doesn't benefit him, only serves to prove my point about misrepresentation. As far as I know this gentleman purchased or was told he was purchasing a Mechanical Breakdown Insurance policy, and the State of Georgia doesn't back or insure any M.B.I. programs. My point is, some people will say anything to scare you into purchasing their service contract. Therefore, lets eliminate the confusion about the different types of contracts.

Warranty : A warranty comes with your vehicle from the manufacturer or selling dealer and is included in the cost of the vehicle. Although most Internet companies still use the term “Warranty” or “Extended Warranty” as a description of their coverage.

Vehicle Service Contract : This is what you buy from a third party or independent company. This is the most common type of service contract purchased over the Internet. Contracts are available from direct insured as well as re-insured companies.

Mechanical Breakdown Insurance: M.B.I. is offered to residents of the State of California and is price regulated by the California Department of Insurance to try and keep cost down. The C.D.I. also oversees the claims handling practices of the insurance companies to make sure they are fair and equitable. Also, the C.D.I. reviews the Insurance Companies' financials to reduce the chance that the companies will become insolvent. Mechanical breakdown insurance policies are typically sold by credit unions, insurance agents, and directly by insurance companies.

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