What your contract has outlined in terms of labor is one of the most important disclosures you can look for in an extended auto warranty contract. Labor rate is the dollar amount a repair facility will charge per hour when repairing your vehicle. The national average is $65.00 per hour and can be as high as $125+ in some markets.

     Scenario. You live in the New York metro area and recently you purchased an extended auto warranty for your car. You bought it from a company that offered long terms and unbeatable prices. Your car breaks and you think its no sweat because your warranty will cover the repair. Your local mechanic charges $110.00 per hour, the job on your car will take 4.5 hours. That means $495 in labor alone. Your warranty contract outlines that it covers up to $50/hour in labor. You are liable for more then half of this amount, or $270. That is assuming your claim is approved.

     Make sure that the contract you purchase offers labor coverage for either: well about the national average, or unlimited labor rate. There are policies that are affordable and cover at least $100/hour in labor, so don't elect for anything less. Labor rate is one of the most overlooked, and important components to your policy. On average, labor accounts for two thirds of the total bill. Usually the highest priced items are the most difficult to repair or replace, and therefore the labor costs more then the parts. Remember that authorized manufacturer dealership service departments will usually have the highest labor rates. If you bring your vehicle there, the company can deny full payment if they believe they can have the car repaired elsewhere for less money. If you end up having your car repaired at the dealership you will pay the difference between the actual hourly labor rate and what is defined in your contract.

     Labor time is another variable which can effect the repayment of your claim. Most independent repair facilities will subscribe to a national average labor time guide, by which they figure out how many hours to charge you for. The warranty company may base their payout on a different guide. Sometimes a warranty company will determine the maximum amount of labor time they are willing to pay for. This time may differ from what the repair facility usually charges.

     Even with this discrepancy, most repair shops will accept the warranty company's offer and not pass any cost on to the customer. You see, although the warranty company will pay less, the repair facility can probably fix the car in a shorter amount of time anyway, and be guaranteed payment for the work. It is important that your repair facility has done business with warranty companies before, preferably the one you are interested in purchasing a contract from.