CARSON CITY – When you are shopping around for a big-ticket item such as a new home appliance or a car, you will likely be presented with the option to buy a separate service contract to protect your new purchase for repairs or replacement. But before you sign on the dotted line, the Nevada Division of Insurance (Division) urges consumers to read the fine print to ensure the terms and conditions of the service contract make financial sense for you. We have provided answers to frequently asked questions to help you make a more informed decision when it comes purchasing a service contract.
What is a service contract?
A service contract is a contract or agreement that a consumer may purchase for an additional cost from the sale of a product that provides protection for repairs, maintenance or replacement due to a defect in materials, workmanship, or normal wear and tear. Service contracts may be sold by a retailer or a third-party administrator with coverage periods ranging anywhere from a few months to several years. Service contracts are not insurance and differ from warranties that are inclusive of the item’s purchase price. A few common types of service contracts are home warranties, vehicle service contracts and electronics protection/service plans.
Is it worth my money to purchase a service contract?
Consumers should read the service contract in detail and make sure they understand and can adhere to ALL the terms and conditions before purchasing. Consumers are often surprised by specific exclusions, limitations or requirements contained in their service contract when their claim for repair or replacement is denied. Ultimately fully understanding what your service contract includes can save you money and help you make an informed financial decision.
A few common limitations and exclusions to watch out for are:
- Routine maintenance requirements – Many service contracts require products to be serviced on a regular basis for claims to be approved. For example, you may be required to have your AC unit or furnace serviced annually and have proof of maintenance, otherwise, if you have a claim, it can be denied. Oftentimes consumers find themselves having to pay out of pocket because they were not aware they needed to keep up with the routine maintenance.
- “Cash in lieu” – This provision is seen frequently with home warranties wherein the service contract provider can opt to give the owner a cash sum in lieu of performing the repairs or replacement. This might occur if there is a shortage of the provider’s “in-network” contractors available for dispatch. However, consumers should be aware that the cash sum given only covers the wholesale amount the contract provider would pay for parts and labor, which may be significantly less than the full retail cost a consumer would pay a contractor directly.
- Drivetrain, powertrain and bumper-to-bumper coverage options – We commonly hear from consumers with denied vehicle service contract claims because they mistakenly thought a part or repair was covered. There are typically three types of coverage options: drivetrain coverage, which only covers transmissions, drive shafts and axles; powertrain coverage, which adds coverage for the engine and bumper-to-bumper, which is the most comprehensive coverage, but still may exclude parts such as brake pads, wiper blades, fuses, tires, wheels, glass and ironically, bumpers. Understanding these differences in coverage and choosing the best fit for your needs means you’re less likely to be surprised by out-of-pocket repair costs.
What if I change my mind after purchasing a service contract? Can I get my money back?
There is a “free-look” period (typically 20 days from the date the contract is mailed or 10 days if you receive the contract at the time of the sale) to read the service contract and decide if you wish to keep it or not. If after reading the fine print you decide you don’t want to keep the contract, cancel before the “free-look” period is over because there may be cancellation and transfer fees.
Pro Tip: If you don’t want to pay for the contract before you read it, check out the Division’s website for the “Service Contracts Look-up Tool” which contains a listing of licensed Service Contract Providers and each service contract that is approved for use in the State of Nevada. To view this tool visit: https://doi.nv.gov/Consumers/Service-Contracts/.
Are service contract providers regulated by the Nevada Division of Insurance?
Although service contracts are not considered to be insurance, under Nevada state law (NRS 690C), the Division of Insurance is responsible for licensing and regulating service contract providers. Before you purchase a service contract, you can verify if the company is licensed to do business in the state of Nevada by visiting our website at https://di.nv.gov/ins/f?p=licensing:search and click on “Company Lookup.”
Note: warranties offered directly by the manufacturer (as opposed to a third-party administrator or retailer) and service contracts for items of less than $250 are not required to be licensed.
What should I do if I have questions or concerns about a service contract or a service contract provider?
If you have received solicitation from a company that you believe to be providing false or misleading advertising, or if you simply have questions or concerns about a service contract or provider, please notify the Division at email@example.com or contact our Consumer Services section toll-free at (888) 872-3234.