I analyze warranties, warranty companies and repair costs for a living. There are four levels of extended coverage you can purchase:
1) Exclusionary (a.k.a. bumper to bumper, luxury, new car, full coverage)
Covers about 95% to 98% of your out-of-pocket repair expenses and is the highest level of coverage possible. To qualify for this level of coverage your car needs to be up to 6 years old and under 60,000 miles. Exclusionary policies will never list any parts covered in the contract and only list the parts not covered or excluded (hence the term exclusionary). If you qualify, this is the policy to purchase.
2) Stated Component (a.k.a . comprehensive, major component)
Covers about 60% to 65% of your out-of-pocket repair expenses. Qualification averages less than 8 or 9 years old and under 100,000 miles. A stated component policy will have some level of coverage for every major mechanical and electrical system from engine, transmission, drive axle, steering , suspension, brakes, fuel system, air conditioning/heating to most major electrical components. Typically a good value for slightly older mid-mileage vehicles. This would also be a good choice if you recently purchased a used car and don't know the history.
3) Powertrain Plus (a.k.a. basic component, enhanced powertrain)
Covers about 20% to 25% of your out-of-pocket expenses. Qualification averages up to 10 years old and under 150,000 miles. Coverage typically includes engine, transmission, drive axle, fuel and water pumps, air conditioner and a handful of electronics like starter, alternator and window motors. This level of coverage is where your return on investment starts to become questionable. If you still owe money on your car or don’t know the maintenance and repair history it would offer some value.
4) Powertrain (a.k.a. drivetrain)
Typically available for vehicles up to 12 years old and under 150,000 miles. This is only going to cover the engine, transmission and drive axle and is a last resort level of coverage. You should only purchase this if you absolutely must keep your car operational for financial reasons (you still owe a lot on the car and you need coverage for a catastrophic expensive failure that would leave the car unusable and leave you still making payments). You will more than likely never get a return on your investment with this policy. This is simply catastrophic insurance.
One note is even though a policy says it covers the engine and transmission, this is only the internally lubricated parts in the engine block and head or in the transmission case. Typically the main reasons an engine or transmission stops running is because of sensors, computers or electronics and these are not covered by a powertrain plus or powertrain policy.
Also no policy is going to cover normal maintenance and consumable items such as brake pads, hoses, filters, belts, shocks/struts, exhaust systems and clutch disks for manual transmissions.
There are a handful of other important items to look at in any coverage policy. The first and most important is direct insured. Direct insured means there is a third party independent insurance company who is not affiliated with the warranty company backing the policy. The third party insurance company must be AM Best A rated. Be leery of a company backed by a risk retention group (RRG).
The second most important is wear and tear. There are two types of policies you can purchase, mechanical breakdown or wear and tear. With a mechanical breakdown policy a part must physically break in order to be covered. Plus if it fails from wear it is not covered. A wear and tear policy is a much higher level of coverage and says if a part simply doesn't operate the way BMW intended, it is considered broken and covered. A wear and tear policy will also cover parts that fail from wear. Wear and tear is the highest level of coverage possible. To be true wear and tear coverage, it must state a failure includes wear and tear in the policy. This is a must for an exclusionary policy, a good value on a stated component plan but not always available, and almost never available on a powertrain plus or powertrain plan.
The third item is the limit of liability. Every policy is going to have a limit if liability that states how much the policy will pay out over the term of coverage. The better policies have a limit of the value of your vehicle when you purchase the policy. With some policies it will be the value of your car at the time of repair. The worst limit is an inclusive value at time of repair. This means they add up all of the repair costs since the policy started plus the repair you are currently in for and if this amount is greater than the value of your vehicle on that day, the repair is not paid for and the policy expires. Powertrain plus and powertrain policies usually have a stated dollar amount as the limit, i.e. $10,000.
There are also a few other things to look at: does it pay dealership labor rates, is overheating covered, are diagnostics paid for and is the repair shop paid directly.
There is a lot more to a policy than simply what it covers. What really separates a good policy from a bad is how repairs are covered. Most issues with warranties are the majority of people don't realize exactly what they purchased.
There are about eight companies in the country that have been in business for over 25 years, have impeccable insurance backing and excellent reputations for handling claims. There are about 60 companies with fairly reasonable coverage and insurance. And there are over 600 other companies you can purchase from with questionable coverage and limited or no insurance backing. The reason most shops don't care for extended warranties is because most of the time they have to deal with the rather questionable companies.
Also, just because you buy it from a dealer doesn't mean it's a good company or a good policy. It just means the dealer likes it because it's the most profitable for them. The same applies to coverage offered by credit unions, car insurance companies and roadside assistance companies.
The first rule in finding a good company is if you're being pressured to purchase immediately, walk away. This is not a company you want to deal with. Another sign is does the price keep coming down? No respectable company is going to pull this. The biggest giveaway is are they offering a discount? Not one major warranty company offers discounts. No mother's day discounts, no first time buyer discounts, no free gas cards, no money back at the end of the warranty. Run away from these companies. The bottom of the barrel are companies who advertise on radio or TV, or send something in the mail, or call you. No major warranty company advertises on TV and not one sends anything in the mail and they absolutely will not call.
Is it worth it? Obviously if a policy pays more in repairs than what you paid for it then it's worth it. Since you don't know what your repairs are going to be, you really need to look at this as any other type of insurance. I've never filed a claim on my homeowner's policy and after 30 years was it worth it. Absolutely, because it protected my investment in my house. If you bought a 5 year policy for $3,000 and in the end it only paid for $2,500 in repairs did you win? Absolutely. You would have had to pay the $2,500 without the policy. This means you protected your investment in your car for 5 years for only $500. That's a good value and a good investment. Buying from the wrong company or not buying the highest level of coverage you qualify for would be a poor investment.
Is putting $3,000 in the bank and self-insuring a good investment? That's not an investment, it's a gamble. If your head warps in two weeks there goes your $3,000 and you still have years of repairs to worry about. There is no such thing as self-insuring, either you get coverage or you don't. The basic concept of insurance is someone else has to gamble and not you.
Some people like insurance, some don't. But don't buy a warranty for peace of mind. Peace of mind has no real value. The only reason to buy a warranty is to protect your investment.
If you do purchase a policy, the most important point is you must maintain your car according to the manufacturer's guidelines and document that you have. This is not just for extended warranties. Most people don't realize it is also a requirement to maintain the original factory warranty. If you don't do the maintenance and document it, your factory warranty would also be voided. Also, with just about any warranty you can do the maintenance yourself if you'd like. Just keep your receipts and document the mileage.
One note for BMWs, a lot of policies require an oil service every 4 to 6 months or 3,000 to 5,000 miles. Ask for a rider to allow you to go by BMW's oil service recommendation.
If you want to learn more about extended warranties a very good resource is consumerautomotiveresearch.com.