In some states - including California , Maryland , Maine , and New Hampshire - the sale of automobile service contracts through anyone other than an auto dealership is illegal. In these states licensed Property and Casualty Agents can sell what is know as Mechanical Breakdown Insurance or MBI.

Mechanical Breakdown Insurance (MBI) is a policy, contract, or agreement that undertakes to perform or provide repair or replacement service, or indemnification for that service, for the operational failure of a motor vehicle due to a defect in materials or skill of work or normal wear and tear, and that is often issued by an insurance company authorized to do business in the state.

A mechanical breakdown insurance policy (MBI) is a true insurance product. Like personal auto or homeowners insurance, the MBI creates a direct relationship between the vehicle owner and the insurance company. MBI coverages and premiums are regulated by State Departments of Insurance, assuring a fair price for the coverage is provided. Likewise, administrative, underwriting, and claim handling functions are subject to the review and control of the State Department of Insurance. They would also be covered by the State Insurance Guarantee Fund providing a higher level of consumer protection over other types of contracts, including those that may be issued at the dealership or from a third party company.

A "mechanical breakdown" warranty is often less comprehensive than an extended service contract. As a result, it is often less expensive. Understand that many components in your vehicle such as piston rings and CV joints wear out with greater frequency than they break. These components are not covered under basic "mechanical breakdown" warranties. Read your policy carefully. If "wear and tear" is not covered, you are opting into a lesser level of coverage.