| | 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
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 (see
table below).
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.
Many service
contracts sold by dealers are handled by
independent companies called
administrators. 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 the auto
service contract is underwritten by an
insurance company. In some states, this
is required. If the contract is backed
by an insurance company, contact your
State Insurance Commission to ask about
the solvency of the company and whether
any complaints have been filed.
How much does
the auto service contract cost?
Usually, the price of the service
contract is based on the car make,
model, condition (new or used),
coverage, and length of contract. The
upfront cost can range from several
hundred dollars to more than $1,000.
In addition to the
initial charge, you may need to pay a
deductible each time your car is
serviced or repaired. Under some service
contracts, you pay one charge per visit
for repairs — no matter how many. Other
contracts require a deductible for each
unrelated repair.
You also may need to
pay transfer or cancellation fees if you
sell your car or end the contract.
Often, contracts limit the amount paid
for towing or related rental car
expenses.
What is
covered and not covered?
Few auto service contracts cover all
repairs. Indeed, common repairs for
parts like brakes and clutches generally
are not included in service contracts.
If an item isn't listed, assume it's not
covered.
Watch out for
absolute exclusions that deny coverage
for any reason. For example:
- If a covered part is damaged by a
non-covered component, the claim may
be denied.
If the contract specifies that only
"mechanical breakdowns" will be
covered, problems caused by "normal
wear and tear" may be excluded.
- If the engine must be taken apart
to diagnose a problem and it is
discovered that non-covered parts need
to be repaired or replaced, you may
have to pay for the labor involved in
the tear-down and re-assembling of the
engine.
You may not have
full protection even for parts that are
covered in the contract. Some companies
use a "depreciation factor" in
calculating coverage: the company may
pay only partial repair or replacement
costs if they consider your car's
mileage.
How are claims
handled?
When your car needs to be repaired or
serviced, you may be able to choose
among several service dealers or
authorized repair centers. Or, you may
be required to return the vehicle to the
selling dealer for service. That could
be inconvenient if you bought the car
from a dealership in another town.
Find out if your car
will be covered if it breaks down while
you're using it on a trip or if you take
it when you move out of town. Some auto
service contract companies and dealers
offer service only in specific
geographical areas.Find out if you need
prior authorization from the contract
provider for any repair work or towing
services. Be sure to ask:
- how long it takes to get
authorization.
- whether you can get authorization
outside of normal business hours.
- whether the company has a
toll-free number for authorization.
Test the toll-free number before you
buy the contract to see if you can get
through easily.
You may have to pay
for covered repairs and then wait for
the service company to reimburse you. If
the auto service contract doesn't
specify how long reimbursement usually
takes, ask. Find out who settles claims
in case you have a dispute with the
service contract provider and need to
use a dispute resolution program.
Are new or reconditioned ("like") parts authorized
for use in covered repairs?
If this concerns you, ask. Some
consumers are disappointed when they
find out "reconditioned" engines are
being used as replacement parts under
some service contracts. Also ask whether
the authorized repair facility maintains
an adequate stock of parts. Repair
delays may occur if authorized parts are
not readily available and must be
ordered.
What are your
responsibilities?
Under the contract, you may have to
follow all the manufacturer's
recommendations for routine maintenance,
such as oil and spark plug changes.
Failure to do so could void the
contract. To prove you have maintained
the car properly, keep detailed records,
including receipts.
Find out if the
contract prohibits you from taking the
car to an independent station for
routine maintenance or performing the
work yourself. The contract may specify
that the selling dealer is the only
authorized facility for servicing the
car.
What is the
length of the service contract?
If the service contract lasts longer
than you expect to own the car, find out
if it can be transferred when you sell
the car, whether there's a fee, or if a
shorter contract is available. |
