Service Contracts

If you are purchasing a new or used automobile, appliance, or piece of electronic equipment, you may be asked if you want to purchase a service contract. In some cases, service contracts are worth the extra money, and in some case they're not. Find out more here.

Service contracts are very similar to warranties, because they are a sort of insurance that covers or helps to cover the cost of replacement and/or repairs on a purchased product. In most cases, these contracts cover an item for a very specific amount of time.

However, they are different from warranties because such contracts do not come with the product. Instead, they are sold separately. The price you pay will depend on what type of item you purchased, as well as the length of the service term.

You can usually purchase service or extended warranty contracts when you buy new or used:

• Automobiles
• Recreational Vehicles
• Boats
• Appliances
• Electronic Equipment
• Furniture

Contracts may also be sold with other types of items, buy you get the general idea.

A service contract usually covers specific parts of an item or product or specific repairs. The exact coverage offered will again depend on the type of item purchased, as well as the context of your contract. There may also be other guidelines associated with the service. For example, service contracts don't normally cover failures caused by misuse of the product.

If you are thinking about buying a service or extended warranty contract on a particular product, you will want to carefully read all of the terms before making the purchase. In some cases, the contract may not cover much more than what is covered by the product warranty. The extra money that you spend to buy the contract/extended warranty would go to waste in cases such as these.

Other times, service contracts are a very good idea—especially if you plan to keep the product for a long period of time and do not want to have to pay to repair or replace it. In these cases, a service or extended warranty contract can save you from worrying, and possibly save you a great deal of money should the product give you any trouble.

If you have any questions about what a contract covers, be sure to ask. Since you will be spending extra money for the service, you don't want to get the wrong impression of what is covered and what is not.

If you need to take advantage of the service contract that you purchased, you will first need to contact the company that the contract is through. They may have their own technicians that they send out to examine your product and make repairs. In other cases, you may be required to take the product to a local repair facility for an assessment.

Before making the call, you should pull put your contract and look everything over, so you know what to expect. This way, if the person on the phone tells you that the problem or repair is not covered, but the contract says it is, you will have something to refer to.

You must also be aware that out of pocket expenses can occur when you make a claim. Like insurance, service contracts often have deductibles that must be met or co-pays. There may also be a charge every time the item or product is serviced. Refer to your contract or call the company who sold it to you if you have any questions in regards to these fees.

If you are interested in learning more about service and extended warranty contracts, you can request a free brochure from the Federal Trade Commission by writing to:

Public Reference

Federal Trade Commission

Washington, D.C. 20580

The brochure is called Warranties and offers valuable information for consumers.

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