We live in a digital age where accessing information is very easy, even as it relates to things such as a vehicle service contract. Unfortunately, that also makes it easy to be misinformed. Vehicle service contracts have not been spared from myths, half-truths, or blatant lies. If you have been left confused by what you’ve read online or heard from people, then you are in the right place. This article looks at the common myths about vehicle service contracts and sets the record straight.
Myth: Vehicle Service Contracts and Auto Warranties Are Similar
There is significant confusion out there about the difference between vehicle service contracts and auto warranties. The only similarity between the two contracts is that they both cover you from unforeseen mechanical breakdowns. Auto warranties are only provided by the manufacturer when you buy a new car. On the other hand, vehicle service contracts can be provided by any certified service provider.
Dealerships, third-party companies, and vehicle manufacturers can all provide service contracts. The term “extended warranty” can be used interchangeably with vehicle service contracts. It refers to additional coverage beyond what a factory warranty offers, though it’s not necessarily through the same provider.
Another difference is the length of coverage. According to the Consumer Trade Commission, auto warranties usually only cover the first 36,000 miles or three years. On the other hand, VSCs remain active as long as you keep paying your premiums.
Myth: Vehicle Service Contracts Are a Scam
Some unscrupulous individuals out there have given vehicle service contracts a bad reputation. However, when done correctly by certified service providers, vehicle service contracts can be a lifesaver. Just be sure to read through the contract and understand the terms of the policy. Ask as many questions about unclear terms as necessary before you accept the contract.
Many vehicle service contracts stipulate that any damage outside the “normal” working condition is grounds for denying your claim. For example, if you go for a routine tune-up and it ends up shorting your electric system, that may fall out of the scope of “normal.” As long as you understand what’s in the contract, you can ensure you’re prepared for the claims process.
However, there is some truth to those scam warnings. Consumer Reports has reminded policyholders to be aware of people impersonating a service contract provider.
Myth: You Don’t Need a Vehicle Service Contract If You Have Auto Insurance
When you are buying a car at a dealership, the dealership will often try to sell you different services. Car insurance is one such service. Auto insurance is a legal requirement for all motorists. However, just because you have insurance doesn’t mean you wouldn’t benefit from a vehicle service contract. Insurance and service contracts cover very different types of damage.
Although both auto service contracts and auto insurance cover the cost of repairs, the circumstances are different. Auto insurance will only help you if the damage is due to an accident, theft, or event like a storm. In addition to repairs and part replacements, auto insurance will also cover medical bills and your liability to other road users. Service contracts, however, don’t need to go through your insurance.
Myth: A Vehicle Service Contract Is Expensive
Vehicle service contracts can be surprisingly flexible when it comes to cost. Most vehicle service contract providers have different packages. It is entirely up to you to choose the policy that best serves your needs. Generally, vehicle service contracts range from a few hundred to thousands of dollars a year. The higher the cost, the more extensive the coverage.
The cost will depend on the extent of coverage and length of the policy. Typically, that cost is broken down into monthly installments. In some cases, you are required to make an initial deposit before the policy kicks in. However, most policies only require monthly payments to maintain coverage. Depending on the contract, you may be required to pay a deductible every time you make a claim. Again, all these costs are negotiable and depend on the mileage, make, and car model.
It turns out that failing to buy vehicle service contracts may be more expensive. According to a survey by the Federal Reserve, an estimated 39% of car owners usually have to go into debt to cover the cost of unexpected breakdowns. With a service contract, the likelihood of needing to borrow money to fix your car is much lower.
Myth: Car Owner Has No Say on Repairs
Another common myth is the restriction when it comes to the choice of the repair facility. Most vehicle service contracts allow the car owner to choose a preferred repair facility from a nationwide list of approved repair centers. That means you can also get service anywhere if there is a problem. Furthermore, you will have a say on what parts are to be used during repairs.
If anything, restrictions are more common with auto warranties on new cars. Because the warranty is through the manufacturer, you may have to take your vehicle to them for evaluation or repair, which can present some challenges if your car breaks down out of town.
Myth: Vehicle Service Contracts Can Be Used to Pay for Existing Issues
The issue of preexisting issues has led to a lot of disputes. So, do service contract companies cover these conditions? The short answer is no. Many people find that out the hard way when they try to get repairs for a problem that was there before the service contract came into play.
The longer answer, though, is that you might be in luck if your service contract is through your vehicle’s vendor. Since issues may be uncovered after you purchase a vehicle, the dealership may cover it in a sign of good faith: you can’t know about a preexisting condition at the time of purchase. Unfortunately, that courtesy doesn’t apply if the car was bought elsewhere. You will be asked about the condition of the car when buying a policy. And to make sure, the car will be inspected to verify its condition.
Myth: Vehicle Service Contracts Cover Everything
The extent of coverage usually depends on the service contract package you are buying. With the lowest-priced contracts, you’ll find the highest number of exclusions. This has the side effect of potentially taking more money out of your pocket: you may have to pay more at the time of repair if you paid less upfront for the contract.
Premium protection plans cover more components of the car. For instance, you may get coverage for the electrical system, air conditioning, braking system, and even trip-interruption services. The most expensive package is usually known as bumper to bumper coverage. This top tier protection covers almost everything, including onboard electronics, like the car stereo. However, modifying any of the electronics will void their coverage.
Remember, even the most expensive protection plan does not cover everything. Any damage sustained that is outside the regular operation of the car will not be covered. If you skip the repairs or crash your car due to carelessness, you are on your own. The good news is that the exclusions are usually in the contract.