Knowing what's covered, and what's not covered by the extended auto warranty you're considering is absolutely vital.
Does the warranty cover breakdown as well as wear and tear? Under a "breakdown" warranty, coverage is extended only to parts that break. Such an extended auto warranty can prove less inclusive than is desirable, since not all parts fail due to breakage. Some need to be replaced because they've worn down over a period of time; a "wear-and-tear" warranty extends coverage to worn-down parts in need of replacement.
Additionally, some extended auto warranties do not cover TSB's. A Technical Service Bulletin (TSB) or Factory Service Bulletin is a notification by the manufacturer that a condition may exist on your vehicle.
Sometimes there is a problem requiring immediate attention; often these bulletins are issued to facilitate a quicker diagnosis or repair procedures from your repair facility. It is common for a vehicle to have dozens of TSBs issued.
Most companies will deny any claim related to a TSB. This is a huge coverage loophole. Additionally, ABS brakes (anti-lock brakes), and overheating -- regardless of its cause -- aren't covered in many car warranties. Thus, if overheating occurred due to problems with an expensive part such as your radiator, you'd be stuck with a hefty repair bill.
Before committing to an extended auto warranty, take the time to fully explore the ins and outs of its coverage implications. The distinctions between the various plans might seem slight, but they can prove quite important.