AAA estimates that the average American spends about 8.94 cents in car maintenance and repairs for every mile they drive. Close to half of all car owners end up tapping into their savings to take care of unexpected car repair costs. If your vehicle warranty is still active, you can rely on it to pay for repairs. After exceeding your car warranty, you can either pay for car repairs out-of-pocket, or you can use a vehicle service contract.
Definition of a Vehicle Service Contract
A vehicle service contract, or VSC, is comprehensive coverage that pays for unexpected mechanical repairs and failures. You can buy a service contract from the manufacturer at the time of car purchase, or you can buy it from a dealer or other third party at any time. VSCs are not warranties, but services that cover the cost of repairs for your car as per the policy you buy. However, the service operates like a warranty in that it expires when your car reaches the agreed mileage according to the plan or when the policy term expires.
What Does the Auto Service Contract Cover?
Each policy is different, but most service contracts do not cover all repairs. Repairs for brakes, clutches, and other common parts that can be repaired during routine car maintenance may not be in the service contract. Auto service contract providers list the items they cover on the contract – if an item is missing from the list, then that item is not covered.
Some auto service contract providers have absolute exclusions that will deny service for a host of reasons. For instance, when an uncovered part is damaged, the service provider denies your claim. Some contracts cover “mechanical damages only” and will deny claims on damages resulting from normal wear and tear.
In some cases, if the damage involved the engine, the mechanic might discover some uncovered parts that need repairs. In such cases, you will have to pay for taking the engine apart and re-assembling it. Few contracts offer full coverage even for parts covered in the policy. A number of companies calculate coverage based on a depreciation factor – this means the contract provider will pay partial repair costs based on the mileage of your car.
Check what the policy says on parts authorized for repairs. In the case that the recommended new parts are not available, repairs may be delayed as the service center orders the said parts.
Car Owner’s Responsibility
To keep the auto service contract active, you need to follow the manufacturer’s recommended routine maintenance. You need to take your car for oil changes, wheel balancing, brakes and parking lights maintenance, among other services. Failure to take your car for service can void the contract. Some service providers require that you show proof of maintenance in the form of records and receipts – keep these handy in case you need them.
Check the terms of the contract to see if there are prohibitions in taking your car to an independent contractor or performing the maintenance at home. Some contracts specify that the dealer who sold the car should do routine maintenance, or they may choose their partner facility for the routine maintenance.
How Contract Providers Handle Claims
Most contracts allow you to choose from a service dealer or repair center of your choice. However, some service contracts only require that you take the car to the dealer you bought it from. Find out if the dealer contract covers you in case your car breaks when you are out of town. With some service providers, you can only access service when in specific geographical areas. Check if you need prior authorization before accessing repairs or towing.
If you need pre-authorization, confirm how long it takes before the company authorizes and whether you can access services outside of business hours. In some instances, where pre-authorization is not necessary, you may have to pay for the repairs and then the company will reimburse you. It is also advisable that you ask who will settle claims in case you have a dispute with the service provider and you need to seek help from a dispute resolution program.
The Cost of a Vehicle Service Contract
The cost of a service contract is dependent on the make and model of your car, the condition and mileage of the car, the length of the contract, and the coverage you choose. This cost might be between a thousand and several thousand dollars. You may also need to pay a deductible, which can be per visit or per repair. Most service contracts only pay a percentage of the towing or car rental costs – you have to cover some of the costs involved. There might also be charges if you need to cancel or transfer the contract upon selling your car.
Who Pays for Repairs?
Check the terms of the service contract to confirm who pays for the repairs. It might be the manufacturer, the dealer, or a third-party service contract company. Companies known as administrators handle most of the service contracts for manufacturers or dealers. These companies will authorize payment of claims for manufacturers and dealers on the contract. When you have a dispute, the administrator will handle it.
If an administrator goes out of business, the manufacturer or the dealer will still meet the contract obligations. Similarly, if the dealer is out of business, the administrator will continue to cover the costs of repairs as per the terms of the contract. If the service provider fails to settle your claims, yet the contract policy shows that they should, check with your state laws to see if you have any legal claims.
Some states require that an insurance company underwrites the service contract. If an insurance company underwrites the auto service contract, check with the state insurance commission to confirm the solvency of the insurance company. Also check with the insurance commission if there are any complaints about the company.
According to insurance regulations, vehicle service contract providers need to keep a sufficient financial reserve to handle all claims by car owners. The basis of the contract fees should be on the claims they expect – this way, the contract provider will not charge more than the cost of the services they offer. If you buy your vehicle service contract through a dealer and the dealer handles claims through an administrator or insurance company, you need to ensure the dealer forwards your premiums every month. Ask for written confirmation to ensure your money goes through at all times.
If the vehicle service contract provider does not settle claims, yet the policy stipulates that the contract provider should pay, try and settle the dispute with the provider. If that doesn’t settle the dispute, you can talk to the state Attorney General to find out whether you have any legal claims. You can also file a complaint with the local consumer protection agency or the state insurance commission. The Federal Trade Commission might also come in when you cannot settle the dispute with the provider.
A vehicle service contract offers more coverage than a vehicle warranty. Most providers allow you to choose who repairs your vehicles and the contract can cover cars with extensive mileage. Make sure you look at all aspects of a vehicle service contract before deciding to purchase one.