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Why doesn't "full coverage" auto insurance cover catastrophic mechanical failure?

E

Eli

Super Moderator | Elite Member
I've always been curious. Even if it's extra, it seems like they should offer it at the least. Do any insurance companies offer such protection?

Let's say you finance a used car. 6mo later, the transmission goes out. You stop making payments. Car is repo'd, but is essentially almost worthless now.

You would think that the lienholders would require such insurance.

On another note, has anyone tried the companies that offer mechanical insurance? How much does it run?
 
Insurance against something that will break on a car does exist.. some companies call it "Mechanical Breakdown Insurance" .. GEICO offers it.

http://www.geico.com/getaquote/auto/mechanical-breakdown-insurance/

GEICO's MBI coverage:
  • Includes all parts and systems not just the specific list of items covered by most dealer warranties.
  • Saves you money, charging only a small premium per each policy period, instead of a large lump-sum payment up front.
*Exclusions to this policy include regular maintenance services such as tune-ups, suspension alignment, wheel balancing, filters, lubrication, coolant and fluids, spark plugs, brake pads and linings, brake shoes, and tires. Also, breakdown repairs made necessary by intentional damage, corrosion, misuse, or improper maintenance are not covered.
 
Insurance really only covers those events which cannot be foreseen. Mechanical breakdown is as much of a factor of owner mismaintenance as it is chance. As such it is an uninsurable peril.

You can get an extended warranty, but they're often overpriced and offer little real protection (a factor of the moral and morale hazards inherent in uninsurable risks).

Lienholders don't require such a thing because if a catastrophic mechanical failure occurs, you're still liable for the payments. If you stop making the payments, wouldn't you also likely stop making premium payments on such an insurance plan? The policy would lapse when it's needed most and the lienholder would still be out. All such a requirement would do is cost you money and make you more likely to default (which is why PMI is bullshit).
 
guyver01 said:
Insurance against something that will break on a car does exist.. some companies call it "Mechanical Breakdown Insurance" .. GEICO offers it.

http://www.geico.com/getaquote/auto/mechanical-breakdown-insurance/

GEICO's MBI coverage:
  • Includes all parts and systems not just the specific list of items covered by most dealer warranties.
  • Saves you money, charging only a small premium per each policy period, instead of a large lump-sum payment up front.
*Exclusions to this policy include regular maintenance services such as tune-ups, suspension alignment, wheel balancing, filters, lubrication, coolant and fluids, spark plugs, brake pads and linings, brake shoes, and tires. Also, breakdown repairs made necessary by intentional damage, corrosion, misuse, or improper maintenance are not covered.
Click to expand...

Interesting. Cool.

Doesn't look like Progressive offers such insurance though. Hmm.
 
joeboggs said:
Insurance really only covers those events which cannot be foreseen. Mechanical breakdown is as much of a factor of owner mismaintenance as it is chance. As such it is an uninsurable peril.

You can get an extended warranty, but they're often overpriced and offer little real protection (a factor of the moral and morale hazards inherent in uninsurable risks).

Lienholders don't require such a thing because if a catastrophic mechanical failure occurs, you're still liable for the payments. If you stop making the payments, wouldn't you also likely stop making premium payments on such an insurance plan? The policy would lapse when it's needed most and the lienholder would still be out. All such a requirement would do is cost you money and make you more likely to default (which is why PMI is bullshit).
Click to expand...

Hmm.. I disagree with your first statement. I don't think that's the reason why it isn't offered more readily.

As for your second statement.. Then why is "full coverage" required? If you're still liable for the payments, then it shouldn't matter if you total your car. I thought the purpose was to protect their collateral.. that should include mechanical. The drivetrain is one of the most expensive parts of the car; the car is worth almost nothing without a functional drivetrain. It seems silly that something like windows would be covered when the engine/transmission is not.

There are companies that offer mechanical only insurance.. Different from an extended warranty. I've been seeing advertisements for them the last few years.
 
Last edited:
...it's called a 'warranty?' and on a car that's not new, the warranty company knows it's a crapshoot and will thusly bone you.
 
Eli said:
I've always been curious. Even if it's extra, it seems like they should offer it at the least. Do any insurance companies offer such protection?

Let's say you finance a used car. 6mo later, the transmission goes out. You stop making payments. Car is repo'd, but is essentially almost worthless now.

You would think that the lienholders would require such insurance.

On another note, has anyone tried the companies that offer mechanical insurance? How much does it run?
Click to expand...
That what extended warranty are for.
 
amdhunter said:
Yikes, I was wrong.

Mechanical Breakdown Insurance $250 Ded. $29.00

I could have sworn it was less...
Click to expand...

Ahh. That's still a steal compared to the ~3,000$ a new transmission can cost..

The reason I bring this up is because the transmission in my fiancee's 2001 Civic just went out.

Fucking automatics. :thumbsdown:
 
Eli said:
Let's say you finance a used car. 6mo later, the transmission goes out. You stop making payments. Car is repo'd, but is essentially almost worthless now.

You would think that the lienholders would require such insurance.
Click to expand...

The kind of person who would allow their car to be repossessed probably has terrible credit, so the lienholder is covering that risk with a higher interest rate.
 
Eli said:
As for your second statement.. Then why is "full coverage" required? If you're still liable for the payments, then it shouldn't matter if you total your car. I thought the purpose was to protect their collateral.. that should include mechanical.
Click to expand...

Because with "full coverage" (i.e. collision and other than collision) if the car is totaled the lienholder is paid directly. You're still liable but they know you'll skip out on paying, so they pay the lienholder first. A collision or other than collision claim is unforseen and unintentional (otherwise it would be excluded as an intentional act) so as long as coverage is in effect when the loss occurs it will be covered. Mechanical breakdown is much more nebulous. If something happens on Monday, you stop paying on Tuesday, and the problem is diagnosed at a shop on Wednesday is the loss covered? Did the loss occur on Wednesday when the diagnosis was made or on Monday when the incident occurred? What if there was no incident on Monday but instead it was a continuous problem over the course of 8 months that got worse?

The drivetrain is one of the most expensive parts of the car; the car is worth almost nothing without a functional drivetrain. It seems silly that something like windows would be covered when the engine/transmission is not.
Click to expand...

Window breakage is covered because its a sudden and unforeseen event. The motor dying is not covered for the reasons stated above. You really can't insure something that is:
a) guaranteed to occur, and
b) exacerbated by the insured's intentional acts.
Mechanical breakdown WILL occur to every vehicle at some point. Your failure to get an oil change will accelerate the incidence of breakdown. But once the breakdown occurs it's much harder to prove what the proximate cause was.

There are companies that offer mechanical only insurance.. Different from an extended warranty. I've been seeing advertisements for them the last few years.
Click to expand...

Check the fine print and you'll see that they're usually pretty worthless plans.
 
amdhunter said:
Yikes, I was wrong.

Mechanical Breakdown Insurance $250 Ded. $29.00

I could have sworn it was less...
Click to expand...

Welcome to Geico. There's a reason most of their policyholders leave at the 6- or 12-month renewal. They have a reputation for offering unrealistically low initial rates and putting in stealth rate increases at those first two renewals. Same for Progressive. There's a reason why your agent will tell you "see you in a year" if you leave a company like Allstate, State Farm, Farmers, or AAA for one of the internet companies.
 
Eli said:
I've always been curious. Even if it's extra, it seems like they should offer it at the least. Do any insurance companies offer such protection?

Let's say you finance a used car. 6mo later, the transmission goes out. You stop making payments. Car is repo'd, but is essentially almost worthless now.

You would think that the lienholders would require such insurance.

On another note, has anyone tried the companies that offer mechanical insurance? How much does it run?
Click to expand...

You have extended warranty and insurance mixed-up. Two different businesses.
 
Eli said:
Let's say you finance a used car. 6mo later, the transmission goes out. You stop making payments. Car is repo'd, but is essentially almost worthless now.
Click to expand...

but you're still liable for whatever you owe, no?

it isnt like a house, and you walk away from a foreclosesure even if you owe more than the house is worth
 
joeboggs said:
Welcome to Geico. There's a reason most of their policyholders leave at the 6- or 12-month renewal. They have a reputation for offering unrealistically low initial rates and putting in stealth rate increases at those first two renewals. Same for Progressive. There's a reason why your agent will tell you "see you in a year" if you leave a company like Allstate, State Farm, Farmers, or AAA for one of the internet companies.
Click to expand...

My rates have never gone up with Progressive (other than changing / adding vehicles or increasing coverage). They have gone down, though.

Maybe I should call Allstate just to see what they'd give me..
 
jlee said:
My rates have never gone up with Progressive (other than changing / adding vehicles or increasing coverage). They have gone down, though.

Maybe I should call Allstate just to see what they'd give me..
Click to expand...

Yeah, Progressive has been good to me for the past 4 years. So good that I just got an awesome rate adding a new house policy just last week. 300k home $430 policy.
 
I had Progressive for a numbers of years. The insurance was never cheap but my rates never increased. When I got hit by a guy with no insurance they took care of it no questions asked and again no rate increase.

Finally I got tired of the rate and switched to Geico which was about 1/2 per six months of what I was paying with Progressive. I was with Geico for a year when they raised my rate. No tickets, no accidents, same car just more money.

I finally switched to Allstate and have been with them for some time now. They matched my original rate with Geico.
 
amdhunter said:
I have MBI through Geico. It only costs $7 a month or so.
Click to expand...
Why; your car is leased?

It seems MBI requires you to sign up when the car is VERY young and in fact has PLENTY of factory warranty left. Since you cannot renew it if it's cancelled, and since I'm sure you'd go to factory first with any problems it's only really usable once you get past, say 60k miles, at which point you've been paying this premium unused for some years, which is probably why it seems to cheap up front.

Let's say your warranty goes to 60k. You're doing 15k/year. This requires you sign up at the 15k mark or before and you're paying $400/year (since you later said it was $29 deductible for you). This means that in three years you've already spent $1200 on that anyway. In fact, this is clever because now this "investment" cannot be taken anywhere else, so you're more likely to stay with Geico so that you can ultimately have a greater chance of making use of this. Clever!

Am I right or missing something?
They have a reputation for offering unrealistically low initial rates and putting in stealth rate increases at those first two renewals.
Click to expand...
This may be generally true. I can only speak for myself; they've not done this in the 3.5 years I've been with them. Their rates are really very low for me and have stayed that way.
 
joeboggs said:
Welcome to Geico. There's a reason most of their policyholders leave at the 6- or 12-month renewal. They have a reputation for offering unrealistically low initial rates and putting in stealth rate increases at those first two renewals. Same for Progressive. There's a reason why your agent will tell you "see you in a year" if you leave a company like Allstate, State Farm, Farmers, or AAA for one of the internet companies.
Click to expand...

Geico never tried to sneak in anything while I had them.
 
Doesn't credit score determine your rate too?
The insurance company will tell you that people that don't pay their bills are more likely to file claims because they may skip on maintenance, drive on bald tires. (sidewall rule applies too?).
Or is it just that people that don't pay their obligations (or care) tend to screw stuff up more?

Funny how that works.
 
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