SCIC: Service Contract Industry Council / Frequently Asked Questions

Frequently Asked Questions

A "Service Contract," which is sometimes referred to as an extended service plan or extended warranty, gives purchasers of consumer electronics, appliances, motor vehicles, homes and home systems, the option to protect their products and investments beyond the terms provided by the manufacturer or seller. Service Contracts often provide benefits not otherwise available in a manufacturer's or seller's warranty. Service Contracts offer flexible benefits that can include product repairs, complete product replacement, technical support, and emergency repairs and service. In addition to product and purchase protection, Service Contracts provide consumers with convenience, time savings, and peace of mind.

How does a Service Contract differ from a warranty?

Unlike a Service Contract for which a consumer pays a separate charge, a manufacturer's warranty is included in the purchase price of a product. You don't have to decide whether to "buy" it or not - it simply comes with your product. Although Service Contracts are sold by manufacturers, as well as other kinds of companies, they differ from a manufacturer's warranty. Manufacturers' warranties generally have limited product protection and are effective for a limited period of time, some as short as 90 days, depending on the type of product covered. Service Contracts are designed to provide protection after a manufacturer's warranty expires but they can also overlap by providing additional benefits generally not included in a manufacturer's warranty.

Who sells Service Contracts?

Service Contracts are sold by representatives from a wide swath of industries, for instance, many Service Contracts for homes are sold primarily by realtors and builders, while most Service Contracts for motor vehicles are sold by automotive dealers and manufacturers. Service Contracts for consumer products, ranging from digital cameras, cell phones, TVs, computers, appliances, etc., are generally sold by the retailers who market these kinds of products. Service Contracts are also available from independent companies through the Internet, offering an array of Service Contract purchasing options to consumers. Many companies actively selling Service Contracts are members of the Service Contract Industry Council (SCIC).

What is the Service Contract Industry Council?

The Service Contract Industry Council (SCIC) is a national non-profit trade association that works with lawmakers across the country to develop fair and uniform regulation to protect consumers, and is an advocate for the regulation of the Service Contract industry. SCIC member companies, which include prominent manufacturers, insurers, retailers, providers and administrators of Service Contracts, collectively offer approximately 80 percent of all appliance, consumer electronics, home, and motor vehicle Service Contracts sold in the U.S.

The SCIC monitors state and national legislative activities, contributes to relevant legislative and administrative proceedings, and educates businesses and consumers about the value and benefits of Service Contracts. Since 1991, the SCIC has been the national leader and pivotal force in the development of model legislation throughout the country, working for balanced standards that create fair and consistent regulation of the Service Contract industry.

What does a typical Service Contract cover?

A typical Service Contract covers repair of a product or the replacement of a product with an equivalent model, within a specified time period when the failure of the product is due to an inherent defect or a defect in materials or workmanship. Service Contracts also often cover failure due to normal wear and tear. A product may be replaced with a new product or rebuilt to meet the manufacturer's specifications of the product. Other provisions of a Service Contract may include covering expenses associated with the covered product breaking down, such as towing or car rental, or reimbursement for food spoilage when a refrigerator malfunctions. Service Contracts can also include technical support, in-home repair service, and other valuable services in support of keeping an appliance, product, system, home or motor vehicle running.

What is not covered by a Service Contract?

A Service Contract typically requires the owner of a product to properly maintain it according to manufacturer's guidelines, and to use the product in a manner for which it was intended. A Service Contract does not cover failure caused by lack of proper maintenance or cleaning; neglect, abuse or misuse of the product; damage caused or service provided by non-authorized repair personnel; intentional physical damage; or damage resulting from other causes such as vandalism, theft, fire, flood, wind, lightning, sand, or freezing.

How much do Service Contracts cost and is it worth the money?

With many manufacturers' warranties providing only limited coverage for as little as the first 90 days of ownership, Service Contracts provide important purchase protection and value. Millions of consumers across the U.S. and globe regularly purchase Service Contracts for the extra protection, time savings, and convenience they provide beyond a product warranty's expiration. The cost of a Service Contract varies and depends on the type of product covered, the benefits included in the contract, and length of time that protection is provided. The cost of most Service Contracts is a fraction of the price of the original product purchase. In some cases, with just one claim or service call, consumers reap savings that more than pay for the Service Contract.

Service Contracts can help consumers cut through red tape with pre-qualified service technicians, technical assistance, and product or parts replacements for products ranging from cars, boats and other recreational vehicles; consumer electronics like TVs, gaming systems, computers and cellular telephones, as well as home systems such as heating, cooling and electrical utility systems and home appliances. Service Contracts also provide business owners with enhanced protection for their office and capital equipment. And for businesses, home office professionals, and consumers, Service Contracts can offer welcome and helpful IT service, repair and high-tech support for computers, printers, networking equipment and telephones.

Repeated positive experiences and a responsible and professional industry have helped to make Service Contracts a valuable and reliable choice for consumers.

Can you purchase a Service Contract after you have purchased a product?

Yes. Many retailers and other sellers offer Service Contracts at the time a consumer purchases a home, auto or consumer product. But there are also many after-sales providers of Service Contracts that allow consumers to take time to decide if he or she wants to have added protection before or after the manufacturer's warranty expires.

How can a consumer get the most out of a Service Contract?

Consumers should read their Service Contracts carefully to fully understand the coverage and their obligations. Consumers are urged to keep their Service Contracts and all associated paperwork, such as purchase receipts and maintenance/repair records, in a safe, designated file for quick and easy retrieval as needed.

Can a Service Contract be transferred?

Typically, a Service Contract can be transferred to a new owner of the product by providing the name and address of the new owner to the contract provider or administrator. Your specific contract will details transfer eligibility and terms, as well as specify any requirements such as time considerations or transfer fees.

Are there other costs associated with Service Contracts?

Some Service Contracts may have a deductible. Most Service Contracts do not. It's important for consumers to carefully read the terms of their contracts and to fully understand what is covered and what is not.

What if I change my mind after I've purchased a Service Contract?

Most laws governing Service Contracts require a "Free Look" period, which allows a consumer to get a full refund if he/she changes his/her mind within a specified period of time. Typically, Service Contracts provide 30 days for a consumer to review the terms and conditions of the Service Contract and decide if the purchase is right for them. You should review your contract specifically for details regarding any "Free Look" period.

After the "Free Look" period, Service Contracts typically provide a consumer with the right to cancel at any time during the life of the contract and the consumer will receive a pro-rated refund based upon the amount of time that has elapsed under the contract. Some contracts may deduct the amount of any claims paid from a cancellation refund. A nominal administrative fee for canceling after any "Free Look" period may also apply, depending on the contract.

How are claims handled? Who is authorized to do repairs under a Service Contract?

Consumers can typically initiate claims easily and quickly by calling a toll-free phone number. Claims and repairs may be handled or authorized by the manufacturer, retailer, dealer, an independent company, or others. Many Service Contracts claims are processed by independent companies called administrators, who work in conjunction with the provider of the Service Contract, authorizing the payment of claims or replacement of products, under the contract.

CONSUMER PRODUCT SERVICE CONTRACTS

What should a consumer consider when buying a Service Contract?

Consumer needs vary, however, it is important for consumers to consider the implications of a product failure and their options should that happen. Key considerations, for instance, might include the logistics of arranging quality repair service on short notice, the need to find a temporary replacement product during what can be extended repair downtime, the cost of the actual repair, any potential cost of the temporary replacement and the cost to completely replace the product if it cannot be repaired. Many consumers recognize Service Contracts as an essential, valuable means of addressing these issues and appreciate having a plan in place to minimize major costs and/or inconveniences, at what often can be the worst possible time.

Why should a consumer buy a Service Contract for their product?

Service Contracts enhance the value of products and help the consumer immediately deal with a malfunction and/or the resulting loss of usage. When a product fails, a consumer can typically call a toll-free number and the Service Contract protection activates immediately. Without it, the consumer would be faced with the chore of finding a qualified and trustworthy service technician, as well as the unwelcome time drain and costs associated with having the product repaired or replaced. The value of the product can be enhanced because many Service Contracts are transferable to another owner. If you want to sell your home, auto, and maybe even your laptop computer, the sale may be much easier to make if you can offer to a potential buyer whatever remaining time and benefits are left on your Service Contract.

Is a Service Contract worth the money?

As consumer goods and electronics manufacturers' warranties continue to scale back their coverage period (90-day terms are common), consumers need a viable option to extend the protection for their purchase. In addition to extending the product coverage, Service Contracts may provide consumers with many additional benefits beyond the manufacturers' warranty, including access to product troubleshooting; coverage for accidental damage from handling; coverage for failures caused by power surge and normal wear and tear; coverage for consumable items like bulbs and batteries; and maintenance benefits such as laser cleanings for DVD players.

Service Contracts are designed to minimize the hassle associated with downtime and repairs, while maximizing a product's functionality and the owner's enjoyment of the product.

Do consumers use the Service Contracts they buy?

Absolutely. Consumers use their Service Contracts regularly for not just the obvious -- repairs and malfunctions, but for technical assistance as well. Many "one-time users" become "repeat users." Once you experience the ease of replacing a product "on the spot" rather than waiting six weeks for it to be repaired, or avoid a costly and unexpected repair bill, it's hard to go back.

For what type of products should I buy a Service Contract?

Consumer purchases, such as plasma TVs, cars and trucks with computerized components, and homes run by electronic systems, are technology driven, increasingly complex, and often costly, time-consuming and inconvenient to repair. In addition to the actual parts and labor of a repair, the extensive time and hassle of returning a product to installed, working condition more than justifies the cost of a Service Contract for many consumers.

MOTOR VEHICLE SERVICE CONTRACTS

What can you tell me about motor vehicle Service Contracts?

Motor vehicle Service Contracts have become increasingly popular with consumers as a means to deal with unforeseen and potentially costly repairs. Most dealers offer Service Contracts at the point of sale. As with all service contracts, consumers are encouraged to read the terms carefully and become completely familiar with the coverage and their individual obligations. It's also important to keep service contracts and related paperwork, such as maintenance records and receipts, in a safe, designated file for quick, easy retrieval as needed.

Why do buyers of new motor vehicles need a Service Contract when the manufacturer provides a warranty?

Motor vehicle Service Contracts pick up where a manufacturer’s warranty leaves off. They provide coverage for components and systems not covered during the warranty’s duration and when the warranty ends.

In uncertain economic times many consumers keep their cars longer and take out longer-term loans (5, 6 and 7-year loans are now available) to finance their purchase. A typical manufacturer’s limited warranty generally runs for 3 years or 36,000 miles. After, repairs can be expensive, for instance, it can cost roughly $4,000 to replace a vehicle’s integrated computer unit or repair the air conditioner. In addition, manufacturer’s warranties are based upon defects in material and workmanship and do not cover normal wear-and-tear.

Most Service Contracts cover normal wear-and-tear and may fill in coverage gaps in the manufacturer’s warranty for up to 7 years and/or 100,000 miles, depending on the terms of the contract.

Why should a consumer buy a Service Contract if a car comes with longer-term protection, such as a powertrain warranty?

A powertrain warranty generally covers parts of the engine and transmission for five years and/or 100,000 miles. However, there are over 10,000 components on a vehicle and the powertrain components coverage includes only a fraction of these parts. A powertrain warranty does not cover steering, electrical, suspension, air conditioning, heating, fuel systems, brakes, and convenience packages, such as a navigation system.

Why do buyers of used motor vehicles need a Service Contract?

Buyers of used motor vehicles need the protections offered by Service Contracts for essentially the same reason that new cars buyers do – to cover repairs not included in a manufacturers limited warranty and to continue protection after the warranty runs out.

What is the cost of a motor vehicle Service Contract?

Usually, the price of the Service Contract is based on the vehicle's make, model, year, condition (new or used), as well as the scope of coverage and length of contract (mileage and term) and whether there is a deductible. In addition to paying for repairs or replacement of most mechanical components, key benefits and features often include rental car reimbursement, towing, emergency road service, tire/wheel and road hazard, scheduled maintenance, dent and ding restore, excess wear and tear protection, and theft deterrent protection. Some of these benefits or features may not be available in all states or may be offered as a stand-alone Service Contract.

Who sells motor vehicle Service Contracts?

Approximately 10 million automobile Service Contracts are sold annually, many by dealers at the time of sale and financing. When a consumer sells his/her vehicle, the Service Contract can be transferred to the new owner, sometimes with a small ($25) transfer fee.

How are claims handled? Who is authorized to do repairs under a Service Contract?

When a vehicle covered by a Service Contract needs to be repaired or serviced, a consumer may be able to choose among several service dealers or authorized repair centers. In some cases, the consumer must return the vehicle to the selling dealer for service.

What are the consumer's responsibilities?

Consumers should read and understand the terms of their motor vehicle Service Contract thoroughly. Many Service Contracts require a consumer to adhere to all the manufacturer's recommendations for routine maintenance, such as oil and spark plug changes. Failure to do so could void the contract.

It is important for the consumer to keep detailed records, including receipts, to prove that the vehicle was properly maintained. Securely file and store all signed contracts and back-up documentation in a safe location where they can be accessed easily as needed.

Do consumers use the Service Contracts they buy?

Absolutely. Consumers use their Service Contracts regularly for not just the obvious -- repairs and malfunctions, but for technical assistance as well. Many "one-time users" become "repeat users." Once you experience the ease of replacing a product "on the spot" rather than waiting six weeks for it to be repaired, or once you avoid a costly and unexpected repair bill, it's easy to see how valuable motor vehicle Service Contracts are.

Are consumers legally “protected” when they buy a Service Contract?

Approximately 37 states have enacted specific laws governing motor vehicle Service Contracts. In these states, companies offering Service Contracts typically are required to fulfill their financial responsibility to the consumer in one of the following ways: (1) insuring the program through a contractual liability or reimbursement insurance policy, (2) maintaining reserves and placing a deposit on file with the state, or (3) maintaining a minimum net worth of $100M.

Many Service Contracts are backed by A+ rated insurers, who provide additional financial solvency on long-term contracts. Consumers can typically find the name and contact information of any insurer backing their particular program on their Service Contract.

As with most laws, there may be exemptions from certain requirements. It is important for consumers to research the company offering the Service Contract as well as any insurer backing it.

In many states, service contracts come with a “Free Look,” usually 30 days. If a consumer believes they acted impetuously or changes their mind for any reason, they can return the contract for a full refund during this period. Service Contracts also can be cancelled mid-term, with consumers receiving a pro-rata refund. Some contracts may include a nominal administrative charge if the consumer cancelled mid-term.

HOME SERVICE CONTRACTS

What can you tell me about home Service Contracts?

Home Service Contracts are increasingly popular around the country and are an added value for homeowners, helping them keep their biggest investment in top-notch condition and maintaining its value. For new owners, a Service Contract is a guarantee for years of proper service and stress-free memories in their new home. To a realtor or seller, a home with a Service Contract is a valuable asset and more attractive to prospective buyers. To a buyer, it's an assurance that the home has been well maintained and that caring for it going forward will be affordable, convenient and hassle free.

What does a home Service Contract cover?

Service Contracts for the home help homeowners protect their largest investment by providing a flexible array of services. Home Service Contracts can cover defects in major structural components of your home and/or the major systems of the home, such as the electrical, plumbing, heating or air conditioning systems. Some home Service Contracts also provide for service or repair due to normal wear and tear. You should always review the details of your contract to know exactly what is and is not covered. Having a home Service Contract can provide easy access to a network of pre-qualified service providers and repair professionals, such as plumbers, electricians and HVAC specialists who can be reached with ease by calling one convenient toll-free number. As a result, home Service Contracts are often a welcome relief to new and veteran homeowners alike.

Service Contracts help homeowners budget for routine maintenance and avoid unexpected, sometimes large repair and service bills, as well as inconvenient, unpleasant and sometime dangerous downtime that can result when a home's systems malfunction. Home Service Contracts also often cover a home's major appliances. Keeping you "in business" in your basement workshop, kitchen or laundry room! Over time, a home Service Contract can enhance property value and provide incentives for homebuyers by offering additional value.

Who sells Service Contracts for the home? Can I get one if I've been in my house for several years or purchase a house that is ten years old?

Service Contracts for the home are sold by realtors, builders and independent providers. They can be purchased at the time of sale and are typically transferable to a new owner. Yes, Service Contract are not just available for new homes. Service Contracts are available on homes that have been around for several years, and often provide an added advantage to the seller of the home and peace of mind to any prospective buyer.

Do consumers use the Service Contract they buy?

Frequently Asked Questions

GENERAL INFORMATION ABOUT SERVICE CONTRACTS

CONSUMER PRODUCT SERVICE CONTRACTS

MOTOR VEHICLE SERVICE CONTRACTS

HOME SERVICE CONTRACTS

GENERAL INFORMATION ABOUT SERVICE CONTRACTS

CONSUMER PRODUCT SERVICE CONTRACTS

MOTOR VEHICLE SERVICE CONTRACTS

HOME SERVICE CONTRACTS