What is a Motor Vehicle Service Contract?
Talk to any auto dealer. Most auto dealers will explain the merits of, and offer you the opportunity to buy, a service contract at the same time you purchase your vehicle or within a limited time following that purchase. Many of these contracts are provided by the manufacturer of the vehicle you have purchased. Most service contract companies offer a wide range of options available within each of their contracts. As an example, some of the contracts offer a choice as to the number of miles covered by the agreement. Contracts may protect your vehicle for 20,000, 50,000, 75,000, 100,000 miles or more. Some contracts cover engine components only. Other contracts offer bumper to bumper coverage, and some may be structured to provide the coverage important to you.
Where do I find out about Motor Vehicle Service Contracts, and do I need one?
From any auto dealer.
How do I know which Contract is right for my vehicle?
If you are planning to keep your new vehicle for several years, a motor vehicle service contract may be a wise decision. If you are planning to trade vehicles frequently, you may not need a service contract. If you decide that the service contract may be beneficial to you, the following comments may be helpful.
- When considering the purchase of a contract, it is important to read and understand the extent of coverages offered.
- Carefully study the exclusionary language to determine what is not covered.
- It is also important to know that the contractual obligations of all service contracts sold in this state must be guaranteed by a reimbursement insurance policy issued by a company authorized to do business in Iowa. This guarantee provides a significant safety net should a service contract company become insolvent.
- Lastly, cost and coverage comparisons of the various options available can prove to be most beneficial to anyone considering the purchase of a motor vehicle service contract.
What else do I need to know?
Before signing any agreements or contracts, verify the vendor is properly licensed. For example, recently, Florida Insurance Commissioner has issued a cease and desist order shutting down a number of insurers for the unauthorized marketing and sale of automobile service warranty insurance products. The affected companies include
Warranty Administration, Inc., (DBA Warranty Direct)
SafeData Management Services, Inc., (DBA Warranty Direct)
Consumer Direct Warranty Services,
General Warranty Services.
The order comes after the state’s Office of Insurance Regulation investigated General Warranty and found the company was marketing motor vehicle service warranty products through telemarketing and over the Internet for Warranty without a license.
Regulators said the companies sold contracts to nearly 3,000 consumers racking up $6 million in sales. In addition to the service contracts, Consumer Direct included a “Vehicle Protection Kit,” which included what they called a “scientifically formulated” product that increased the performance and life of the vehicle.
Regulators also alleged that several marketing agents were involved that were not authorized to sell products in the state. These include; First National Warranty LLC, Southern Warranty Trust, Endurance Warrant Services LLC and General Warranty Services.
“The OIR will not tolerate schemes that take advantage of consumers who purchase products in hopes of protecting their investments,” said Florida Insurance Commissioner.