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Service Contracts and Extended Warranties

When you pay for an extended service contract, you and the contract provider are essentially making a bet. You are betting that it’s worth paying extra for the peace of mind knowing that, if a product you purchased needs maintenance or repair down the road, it’ll be covered. The contract provider is betting on making money—that it can charge more for the service contract than it will cost to provide future covered maintenance or repair work.

While a warranty is included in the price of an item, a service contract (or “extended warranty”) costs extra. That extra cost may be worth it or may even be worth little or nothing, depending on several factors.

Is the Item Worth Covering?
Is the product likely to need repairs? If it’s a relatively inexpensive item, is it worth the cost of a service contract? Does the service plan cost as much or nearly as much you’d expect to pay if you needed repairs? Would you be better off putting the money you would set aside for a service contract in a savings account and having it available if something goes wrong?

The Warranty and Service Contract—What Do They Cover and When does the Coverage Begin and End?

  • Duration: Before you consider buying a service contract, find out the duration of the regular warranty and what it does and does not cover. When does the extended warranty period begin and end?
  • Coverage: What does the service contract cover and what is not included? Does the service contract cover all parts or just some parts? Does it include labor? What if you caused the problem either through damage—even if it was an accident—or improper maintenance? Make sure all terms, conditions and promises are in writing. Save the written terms and conditions, as well as receipts for the item and extended service plan.
  • Service requirements: Are you required to file a claim? Do you return the product to the retailer or a designated service center? Do you get a replacement product? Does the agreement include in-home service? If so, when is the service available? What if you move? What happens if the service company goes out of business? What is the reputation of the service contract provider and also the repair provider, if they are separate?
  • Additional costs: Do you have to pay a deductible for service? What about shipping or handling fees?

Who Else Provides Coverage?
Does your credit card company provide an extended warranty if you pay for the product with that credit card? Does your homeowner policy cover personal property damage or loss?

While there may be third-party service contract providers, will they be around if you have a problem? If you purchase the plan from the seller or manufacturer, chances are you’ll know where to find them.

Disputes
If you are having trouble getting service through a service contract or extended warranty, be sure to review the written terms of the agreement. If you believe that the company responsible for repairs is not properly honoring the service contract, contact the retailer who sold you the product. Also consider contacting the manufacturer.

If you still believe the service contract provider is not honoring the terms of the contract, you can file a complaint with the Consumer Protection Division. You can also seek to resolve your dispute in court, though the service contract may first require dispute resolution procedures before going to court.

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