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Auto Service Contracts

    Buying a car? You also may be encouraged to buy an Auto Service Contract to help protect against unexpected, costly repairs. While it may sound like a good idea, don't buy in until you understand both the terms of the contract and who is responsible for providing the coverage.
» The Auto Service Contract
» How Much Does It Cost?
» How Are Claims Handled?
» Length Of The Contract?

The Auto Service Contract
A service contract is a promise to perform (or pay for) certain repairs or services. Sometimes called an "extended warranty," a service contract is not a warranty as defined by federal law. A service contract may be arranged at any time and always costs extra; a warranty comes with a new car and is included in the original price. The separate and additional cost distinguishes a service contract from a warranty.

The Terms
Before deciding whether to buy an auto service contract, ask these questions:

Does The Service Contract Duplicate Any Warranty Coverage?
Compare service contracts with the manufacturer's warranty before you buy. New cars come with a manufacturer's warranty, which usually offers coverage for at least one year or 12,000 miles, whichever comes first. Even used cars may come with some type of coverage.

You may decide to buy a "demonstrator" model; a car that has never been sold to a retail customer but has been driven for purposes other than test drives. If so, ask when warranty coverage begins and ends. Does it date from when you purchase the car or when the dealer first put the car into service?

Who Backs The Service Contract?
Ask who performs or pays for repairs under the terms of the service contract. It may be the manufacturer, the dealer, or an independent company. Independent companies called administrators handle many service contracts sold by dealers. Administrators act as claims adjusters, authorizing the payment of claims to any dealers under the contract. If you have a dispute over whether a claim should be paid, deal with the administrator.

If the administrator goes out of business, the dealership still may be obligated to perform under the contract. The reverse also may be true. If the dealer goes out of business, the administrator may be required to fulfill the terms of the contract. Whether you have recourse depends on your contract's terms and/or your state's laws.

Learn about the reputation of the dealer and the administrator. Ask for references and check them out. You also can contact your local or state consumer protection office, state Department of Motor Vehicles, local Better Business Bureau, or local automobile dealers association to find out if they have public information on the firms. Look for the phone numbers and addresses in your telephone directory.

Find out how long the dealer or administrator has been in business, and try to determine whether they have the financial resources to meet their contractual obligations. Individual car dealers or dealer associations may set aside funds or buy insurance to cover future claims. Some independent companies are insured against a sudden rush of claims.

Find out if an insurance company underwrites the auto service contract. In some states, this is required. If an insurance company backs the contract, contact your State Insurance Commission to ask about the solvency of the company and whether any complaints have been filed.

» Part 1       » Part 2       » Part 3       » Part 4

Additional Information provided courtesy of AllDATA and Warranty Direct


© 2000-2006 Vincent T. Ciulla

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