Service Contracts and Extended Warranties
Overview & Tips
Service contacts, also known as extended warranties or extended service plans, are popular among consumers as a cost-effective way to protect electronic devices, computing systems, appliances, new and used autos and other vehicles, and home systems beyond the terms provided by the manufacturer's or seller's original warranty. Approximately 250 million are sold annually.
Designed to provide protection after a manufacturer's warranty expires, service contracts also can complement a manufacturer's warranty by providing additional benefits not included in the original warranty. Service contracts offer flexible benefits that can include product repairs, replacement, technical support, and emergency repairs and service. In addition to product and purchase protection, service contracts offer consumers convenience, time savings and peace of mind.
Typical products covered include: TVs and home entertainment systems, computers, laptops, cell phones, music systems, appliances, cars, trucks, motorcycles, etc. For small business owners and home-office professionals, service contracts provide enhanced protection for office and capital equipment, including IT service and high-tech support for computers, printers, copiers, networking equipment, telephonics, etc.
Service contracts can help consumers cut through red tape and save time and money with many benefits, including:
- Access to designated pre-qualified service and repair professionals
- Toll-free technical phone support
- Free or discounted repairs
- Product replacement
- Protection against damage caused by power surges and outages
- Optional accident and loss coverage
- Transferability upon sale of the product to a new owner
Generally sold at the point of sale, service contracts typically cost 10-20 percent of the price of the product being protected. Service contracts for consumer goods are purchased most often at the retail level, motor vehicle service contracts are available for both new and used vehicles and generally are purchased at the dealership, while home service contracts, which renew annually, are available directly from service contract providers as well as realtors and contractors. Home warranties uniquely can be purchased at anytime during the course of homeownership, regardless of the age of the home or its appliances or systems.
Maximizing the benefits of service contracts can enhance a consumer's experience with them, protect their purchase investment, and minimize their product's downtime. Click on the individual market segment below for a bulleted list of buying and usage tips.
Most service contracts remain valid if a retailer, dealer or provider closes for business. This is due largely to the Service Contract Industry Council's efforts to regulate the industry on a state-by-state basis with laws mandating licensing and stringent financial responsibility requirements for companies obligated to perform under a service contract.
A majority of states have enacted regulations based on the SCIC Model Act, a legal framework whereby service contracts (extended warranties) are defined, may be sold and incorporate enhanced financial solvency standards for providers. The Model Act includes significant consumer protections and promotes balanced, consistent regulation of the service contract industry. State laws based on SCIC model legislation were instrumental in protecting consumers with service contracts following the closure recently of hundreds of auto dealerships nationwide, as well as retailers such as Circuit City.
Since 1988, the Service Contract Industry Council (SCIC) has worked with state legislatures nationwide to regulate the licensing of service contract providers and to implement stringent financial safeguards to protect consumers and providers. Most companies actively selling service contracts are members of the Service Contract Industry Council (SCIC).