When getting your car extended warranty/VSC, you are going to want to ask yourself a few questions, namely: How old is my car? Does it have manufacturer warranty on it? How long am I planning to have the vehicle? Lastly, how much wear and tear am I going to see on this car?
How you answer will tell you how much you specifically are going to want to, and should, pay for your car's extended warranty/VSC.
Now, the lower the mileage on your car, the lower the cost of warranty. As you use a car, the warranty price will go up, and the manufacturer warranty will run out. So, always check for manufacturer warranty. Usually it will cover the first 3 years or 36,000 miles. Buying an extended warranty/VSC is for the purpose of extending the duration of that warranty, or for getting additional coverage. Some vehicles will have great manufacturer warranty, others will cover the bare minimum, like faulty parts. Look for exclusionary policies that gives you a short list of what they don't cover, as that means they cover everything else.
If you plan on holding on to the car for say 2-3 years, and the manufacturer's warranty is pretty decent, you might be set. If you do get extended warranty/VSC, make sure to check if the warranty can be transferred.
The length of time you might foreseeably be holding on to your vehicle will also tell you how much wear and tear you might see happening. Good extended warranty/VSC should cover you for this.
When shopping around for your car's extended warranty/VSC, you're going to be looking for a) an exclusionary policy, b) one that has nationwide coverage where you to choose where you go (and lets you pay directly to the repairer), and c) says who covers additional expenses like time and labor costs of the repairer. Buying warranty through your dealership might not be the best, as they often are just in-between sales persons.
The Toyota Prius, being a hybrid, can start adding up in out-of-pocket expenses once your 3-year manufacturer warranty runs out. Get it covered before that happens. As with all things, you do get what you pay for, and so you're going to have to weigh what you really need covered, versus excess stuff. $1600-$2000 is certainly reasonable for a 7-8 year warranty, especially if you get roadside assistance and car rental reimbursement.