Extended warranty vs. vehicle service contract
What the two terms mean, and why almost every "extended warranty" is legally a service contract.
- TopicAuto
- Reading time2 min
The short version
A warranty comes with a product and is included in its price. Coverage you buy separately, from a dealer or anyone else, is a vehicle service contract. People call both an extended warranty, and so do we in everyday conversation, but the document you sign is a service contract.
Why the difference matters
A service contract is a contract between you and an obligor, the company responsible for paying claims, and it is usually handled day to day by an administrator. The seller may be a third company. Before you buy, find all three names in the contract. The obligor's financial backing is what stands behind your coverage.
Who regulates service contracts
Service contracts are regulated state by state, most often through the state insurance department. Rules on licensing, cancellation refunds and required disclosures differ, which is why availability and terms vary depending on where you live.
What to read before you sign
Read the coverage section, the exclusions, the waiting period, the claims procedure, the deductible and the cancellation terms. A sample contract should be available before you pay. If it is not, ask for one.
More guides
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- AutoHow much does an extended car warranty cost?The factors that set the price of a vehicle service contract, and how to lower it.