One of the larger financial decisions one makes when buying a new vehicle is the cost of a Service Contract. While many people...even sellers...refer to these as "extended warranties", THEY ARE NOT WARRANTIES. They are service contracts, regulated by each individual state department of insurance. "Warranties" are regulated by the feds under the Moss-Magnuson Warranty Act.
Warranties are INCLUDED with the purchase of an item, whereby service contracts are normally sold. "Warranties" cannot be sold. If you look at your service contract, NOWHERE within the contract language is the term "warranty' used. In fact, the only reason you will see sellers using this term is because no legal authority has told them to stop doing it yet...But eventually, that'll happen.
Service contracts come in two flavors...Stated, and exclusionary. Stated contracts cover whatever is STATED that is covered...Alternator, camshaft, water pump, etc. IF IT ISN'T STATED, IT'S NOT COVERED.
Exclusionary contracts cover everything EXCEPT what is listed in the exclusions. IF IT'S NOT STATED IN THE EXCLUSIONS, IT'S COVERED.
Except in the state of Florida, the dealer sets their own prices on these contracts. As a rule of thumb, dealers set the retail price to that which is double their net cost. So, if the dealer net cost is $1500, the customer is charged $3000 for the service contract. There are many dealers that set this price higher. BUT, there are also dealers that set these prices lower as they are trying to generate volume sales. Don't be afraid to negotiate with the dealer F&I person on the price.
The dealer makes a profit from these on the front side, by marking up the dealer net price. They make a profit on the backside by profit share/underwriting profit (depending on arrangement). What that means is this: There is a certain amount of that contract price set aside to pay claims (reserve). If the reserve equals more than claims paid, they keep a part or all of that amount as profit. Good dealers know how to work this...Talk to your technician. If the tech says it may need something and the dealer isn't presenting that to you, speak up and demand the repair. Most dealers are honest about this, but there are some players out there.
Also, many contracts have what's called a "disappearing deductible". That means if you return to the selling dealer for the repairs, you won't have to pay any deductible. Some contracts have no deductible at all....Either way, you can take your vehicle to ANY repair center that is authorized by the service contract company. If you need a list, call the customer service number in your contract and ask....There are tens of thousands of these shops nationwide.
These contracts are written in plain language that's easy to understand. One thing that's usually listed is the use of Like Kind/Quality (LKQ) parts. If your motor blows apart at 80K miles, don't expect to get a brand new factory engine...It doesn't work that way. Like any insurance product, the contract is designed to indemnify you...make you whole again. 'Whole" isn't used for new. Your 80K motor is used...expect to get LKQ, not factory new.
Finally...buyer beware!!! Get a contract from a reputable company. There are many of them, and the reputable companies have their programs insured by an insurance company with a rating of "A-" or better. That insurance company is usually stated somewhere in the contract.
Here's a tip: If it's sold by a company from St. Louis, it's probably a piece of shit...There's A LOT OF SCAM COMPANIES in St. Louis. Avoid them.
If you have any questions, I'd be happy to answer them. I will not recommend a specific company, but can provide a list of reputable ones if asked.
