You've Been Warned: Don't Buy Key Protection From A Car Dealership

There's a certain rush that comes with having the cash on hand to buy a car. You walk into the dealership, pick a reliable used car under $10,000 or a newer Hyundai under $15,000, agree on the terms, and then come the papers. It all feels routine, with just a signature between you and your new ride. However, this is the exact moment to pause because many dealerships use this stage to slip in expensive extras. One of the most common is something known as key replacement protection, and the price can depend on both the car and the length of coverage.

The Capital of Indian Trail dealership in North Carolina, for example, sells a one-year policy for $199, bundling it with extras like paint sealant and window tint. In New York, Kipo Chevrolet starts its key protection plan at $299 and justifies the price by warning that some smart fobs can cost over $1,000 to replace. Meanwhile, Livingston Motor Company in Montana lists the service for $299 for standard vehicles, and $399 for luxury cars, adding perks like lock-out help and locksmith reimbursement.

While these plans might sound protective, they are one of the many sneaky ways car dealers trick you into spending more money. Plus, this add-on can go beyond $500 when you extend the length of coverage. For example, Lexus Stevens Creek and Longo Lexus both list key replacement plans for $595 for five years, while Heritage Toyota Catonsville promotes a similar plan starting at $599 — advertising payments as low as $11 a month to make it seem more affordable.

When you line up the cost of dealership key insurance against the actual price of a new key, the numbers stop making sense. A 2024 audit by KeyTrak found that a standard key fob usually costs between $250 to $400 to replace, while high-tech smart keys can run from $350 to $700. Edmunds adds that even older switchblade-style keys, which require special programming start around $200. So yes, losing a key can be pricey, but not always as pricey as the coverage meant to protect you. If you go five years without losing a key, you've basically prepaid for a repair that never happened. That's why many red flag this kind of add-on — noting that replacing the key yourself will ultimately cost less.

The value of dealer key replacement plans further falls apart as you look more closely at the fine print. These plans usually only cover one specific car and often require that any replacement be done at the same dealership that sold you the policy. That means that you're stuck going back there, even if another shop offers better pricing or faster service. U.S. News and World Reports ranks key protection as one of the top add-ons to avoid, and even the Federal Trade Commission brought a case against an automotive group that profited from junk extras exactly like key protection.

You don't need to spend hundreds at the dealership in order to protect your car keys. A basic AAA Classic plan costs $64.99 per year and includes roadside lockout help. If you upgrade to AAA Premier for $124.99, it covers up to $150 per locksmith visit, enough to take care of a big part of the bill for most key fob replacements. And, unlike dealer plans that only work for one car, AAA's benefits follow you no matter what vehicle you're driving.

If you want to avoid losing your keys in the first place, a basic Bluetooth tracker can do the job without draining your wallet. Similarly, Apple's AirTag sells for $29 and easily clips onto a keyring, and the Find My app can show you exactly where they are. The best part of this approach is that there are no monthly fees, and no complicated setup. You just replace the battery when needed.

If you still want some kind of policy, you don't need to sign up for the dealer's pricey plan. Standalone key-replacement policies from outside companies usually cost between $4 and $15 a month ($48 to $180 a year), and they often cover the full cost of replacing a smart key. Or you could skip insurance entirely and just save the money yourself. If you put aside the $200 to $600 that a dealership plan would cost, you'll have a personal key fund that's ready when needed.