Limits of liability is another component of an aftermarket automotive contract. It is very important to find this clause and understand it when reviewing the contract. The Limits of liability outlines that maximum monetary amounts the that the warranty company is liable for under the terms of your contract. Now you see how the contract differs from the "sales pitch" language you may have seen on the web site, brochure, television, or heard on the radio. Warranty companies will advertise "unlimited repairs" and this is misleading. Although you may be entitled to unlimited repairs, you will have a limit for the total payout over the course of the contract. In most cases, the limit of liability for any repair will be the actual cash, or book value of the vehicle at the time of the repair. If the repair cost is higher then the value of your car, they company will pay up to this actual value, but no more. The contract will also probably have a maximum liability amount ($) defined.

     Whenever the maximum liability amounts as defined in your warranty contract are reached, the company will usually terminate the coverage and your contract. The limits of liability should help you decide if the contract is worth its purchase price. If the value of your vehicle is not substantial and there is a possibility that a major repair cost can exceed this value, then think about an alternative to an aftermarket warranty contract. The limit of liability is most important when shopping for a contract for a newer car with more technology. The price of major parts such as a new or rebuilt engine or transmission can be staggering. If your car needed a new transmission installed, your total repair bill may be three times what you paid for your contract. You want to make sure the limit of liability is not capped at a certain dollar amount. For newer cars, make sure the limit of liability is the actual value of the car at the time of repair, if not more.

     Just as you would purchase auto insurance in predetermined amounts, and pay more for higher levels of coverage, you will pay more for a warranty with a higher limit of liability. It can be well worth the premium price, depending on the average cost of major components of your car. It may be alright to cover an older, less technologically advanced car with a policy with a low limit of liability. Before signing the contract, you need to find out how much your car is worth if you were to sell it today. In today's economy, you may be very surprised at how depreciated some cars have become, especially gas guzzling SUV's. If your car is not worth much and there is a possibility that a major repair can cost more then the car, you should think about an alternative to the third party warranty that you are interested in.

     Limits of liability is one of the least known and overlooked portions of an aftermarket automotive warranty. Do not miss this clause when reviewing your warranty contract.