Service Contacts: The Basics

When you buy a home, motor vehicle, major appliance, electronic equipment or similar items, a warranty for that product is usually included and is part of the purchase price. Warranties guarantee that the product will perform in a certain manner, and usually provide a remedy (repair or replacement) if the product does not. Warranties are generally valid for a specific time period or up to a certain amount of use (for example, in the case of automobiles, many warranties are valid for 3 years or 36,000 miles, whichever comes first). Some product warranties may be as short as 90 days.

Service contacts, also known as extended warranties or extended service plans, give purchasers of consumer electronics, appliances, autos and other vehicles, as well as homes and home systems, the option to protect their products and investments beyond the terms provided by the manufacturer's or seller's original warranty.

Frequently, service contracts provide benefits not otherwise available in manufacturers' or sellers' warranties. Service contracts offer flexible benefits that can include product repairs, complete product replacement, technical support, and emergency repairs and service. In addition to product and purchase protection, service contracts provide consumers with convenience and peace of mind.

Although service contracts are sold by manufacturers, as well as other kinds of companies, they differ from a manufacturer's warranty. Service contracts are designed to provide protection after a manufacturer's warranty expires, but they can also overlap by providing additional benefits generally not included in a manufacturer's warranty.

Service contracts are sold by representatives from a wide swath of industries, for instance, many service contracts for homes are sold primarily by realtors and builders, while most service contracts for motor vehicles are sold by automotive dealers and manufacturers. Service contracts for consumer products ranging from digital cameras, cell phones, TVs, computers, appliances, etc., are generally sold by the retailers that market these kinds of products. Service contracts are also available from independent companies through the Internet, offering an array of service contract purchase options to consumers.

Most companies actively selling service contracts are members of the Service Contract Industry Council (SCIC).