A Consumer Guide to Automotive Service Contracts & Warranties: What to Do When They Refuse to Pay

Auto Service Contracts and Warranties

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VSCPs are not, technically, insurance companies. Consumers may get the most for their money with an MBI policy, especially one purchased directly from the insurance company. MBI policies are sold by some banks, credit unions and insurance agents, and directly by insurance companies.

One way to buy MBI is over the Internet. If you want to obtain MBI over the Internet, it is very important to do the following:. The Obligor — When you pay several thousand dollars for a car you usually get to drive away in the car.

But when you pay hundreds or thousands of dollars for a VSC to protect against the cost of car repairs, you only get a piece of paper - a contract that is legally binding between you and the obligor. VSCPs, dealers, and insurance companies. Over the past 40 years, dozens of VSC companies and car dealers have gone out of business. In many cases, car owners who purchased repair agreements from one of these companies that went out of business were stuck with unpaid repair claims.

Their repair agreements became worthless pieces of paper. If you buy a VSC, it is important that you only buy it from a car dealer, and that the VSC contains the name and address of the CDI-authorized backup insurance company. The CDI has received many complaints from people who bought repair agreements from companies that were operating illegally. Unlicensed companies that sell repair agreements by phone, mail or the internet often do not pay valid claims and are committing a felony. The Price — The price of a repair agreement depends mainly on the type of car, how many miles are on the car's odometer when you buy the agreement, the kinds of repairs that the contract covers or does not cover, and the number of years or miles the agreement covers before it expires.

Car dealers are allowed by law to make a profit on the sale of a VSC. They may charge you as much as you are willing to pay and as much as the company financing your vehicle is willing to finance. Agents who sell MBI receive a commission. You can negotiate the price of a VSC with a dealer, just as you can negotiate the price of a car. However, you cannot negotiate the price of MBI. The Duration — All repair agreements expire after a certain length of time or number of miles.

Warranties

What is Covered — Different repair agreements provide different coverages. For example, so-called "power train coverage" might only cover the major components of the vehicle, such as the engine, transmission and drivetrain. A more expensive agreement with broader coverage will cover the engine, transmission, drivetrain and other major parts, such as the suspension, brakes, air conditioner and steering. The broadest level of coverage includes every mechanical part except the parts listed on the contract as "excluded. Some people only want to have coverage for the most expensive repairs, like repairs to the engine or transmission.

They are able and willing to pay for less expensive repairs using their savings, or prefer to buy a less expensive repair agreement even if it means less coverage. Other people want their repair agreement to cover more repairs, including less expensive repairs for example, water pumps or sensors , even though a "broad" repair agreement covering more repairs will cost more, and a covered breakdown may never occur. It is common for VSCs and MBI policies also to pay for towing and rental car costs that you incur while your vehicle is being repaired.

Some agreements also provide coverage for lost or damaged key fobs, windshield damage, paintless dent repair PDR , or damage to tires and wheels from road hazards. When considering the purchase of a VSC or MBI policy, you need to read the whole agreement to learn which parts are covered. As noted above, the broadest coverage is a so-called "exclusionary" contract, in which all parts and services are covered except the parts and services listed in the "Exclusions" section of the VSC.

With contracts that provide coverage that is less broad, a part or service must be specifically listed in the "Covered Parts" section of the contract to be covered. Regardless of whether a repair agreement is of the "exclusionary" type, or the "specified parts" type, a breakdown to a part will not be covered if a provision in the contract excludes coverage based on the nature of the breakdown for example, if you contributed to the breakdown by failing to properly maintain the vehicle.

What is Not Covered — Many consumers mistakenly believe that a vehicle repair agreement will cover anything and everything that might break. This is never true! All repair agreements have a section called "what is not covered" or "exclusions. You must disregard any coverage that is verbally promised by a sales person but is not contained in the written repair agreement!

You may find that parts listed as covered may actually not be covered if a breakdown occurs in certain ways. For example, repair agreements often won't cover a breakdown caused by or involving:.

Sometimes an auto part covered under a repair agreement is damaged due to the failure of a non-covered part. For example, many VSCs exclude coverage for hoses. If an engine is damaged due to a sudden loss of coolant through a cracked hose, many VSCs will not cover the engine damage. The VSCP or claim administrator will deny the claim because a contributing cause of the damage a cracked hose in this case is not covered.

Never continue to drive a car once a dashboard warning light comes on that indicates a serious problem requiring you to stop driving immediately. Some repair agreements exclude repairs needed due to "wear and tear. Some experts believe that if a part is going to break on a newer car for some reason other than wear and tear such as faulty design or manufacturing , it will usually break within the first few years.

In those first few years, almost all new cars are covered by a free, new car warranty provided by the manufacturer. Before buying a VSC or MBI policy, you should carefully review what is covered and not covered to see whether repairs needed because of wear and tear are covered or excluded. If wear and tear claims are excluded, you might want to consider buying a repair agreement that does not exclude such wear and tear claims.

That way, if it is not clear whether a repair is needed due to wear and tear or for some other reason, it is more likely that the obligor will pay for the repair. Again, it is a mistake to assume that a repair agreement will cover every repair your car may need. When a covered part that requires routine maintenance breaks and you cannot prove that the car was properly maintained, an obligor may not pay for the repair. Therefore, you must perform all routine maintenance that is specified in the repair agreement and owner's manual, and must keep records to prove the maintenance was done.

Before you perform your own maintenance, check your repair agreement to see if it allows you to do so. If it does, and you perform maintenance yourself, keep receipts for products you bought and used, such as oil and other lubricants and fluids, filters, spark plugs, brake pads, belts and tires. Also, keep a log indicating the type of maintenance you performed, and the date and mileage when performed.

A lack of coolant or oil can cause major damage to the engine. Since repair agreements will not cover damage caused by a lack of routine maintenance, you should regularly check your engine for proper oil and coolant levels, and repair or replace heavily worn hoses and seals that might leak. Repair agreements always provide instructions on what to do if you need repairs. Read these instructions carefully as soon as you buy a repair agreement, and read them again when you determine that your car needs a repair.

One important instruction is to report needed repairs immediately to the obligor or claim administrator. All repair agreements have a toll-free phone number for this purpose. A claim may be denied if you do not follow the contract's instructions exactly. For costly repairs, an obligor or administrator will likely dispatch an independent inspector to examine the car.

For all repairs that may be covered under the repair agreement, you will need to approve a "tear down. If, after the inspection, the obligor refuses to pay for the repair because the obligor thinks the repair is not covered by the repair agreement, then you will need to pay for the tear down and the repair yourself. However, you can try to get the obligor to reconsider its decision not to pay you.

You have more rights than you might think

If the obligor or administrator says the breakdown is covered by the repair agreement, it will provide the repair facility with a "claim authorization number. You and the repair facility should both write down and keep this authorization number, along with the name of the person giving the approval, what repairs were approved, and the date and time of the approval.

As discussed earlier, VSCs are not insurance policies.

What You Need to Know about Warranty Laws - Consumer Reports

However, because so many VSC companies went out of business without paying claims in the s through s, California law requires that a backup insurance company authorized by the CDI guarantee almost all VSCs. We respect your privacy. All email addresses you provide will be used just for sending this story. Car warranty scams, which attempt to trick consumers into buying vehicle service contracts, continue to plague consumers despite government efforts to crack down on the caper.

The FTC says the Miami-based company tricked consumers into believing that the calls were from their vehicle manufacturer or car dealer, a common tactic in car warranty scams. Those who purchased the service contracts found that the coverage was far less than represented, the agency says. Those who tried to obtain refunds found it virtually impossible. This is not the first case of its kind. Although the refunds announced this week are from a settlement between the FTC, the company and its principle executive, the car warranty scam is alive and well, say the Better Business Bureaus based in West Palm Beach and St.

Louis, where many warranty marketers are located. They advise recipients to call for details about extending their coverage. Smith says the salespeople often try to pressure car owners into an immediate purchase by claiming the offer is good only for that day. But canceling and obtaining a refund often is difficult or impossible, he says. Contact your local or state consumer protection office if you have reason to believe that your contract wasn't put into effect as agreed.

Usually, the price of the service contract is based on the car make, model, condition new or used , coverage, and length of contract. The upfront cost can range from one to several thousand dollars. In addition, you may need to pay a deductible. Find out if the deductible is charged on a per visit or per repair basis. This can make a big difference. Service contracts often limit how much they will pay for towing or related rental car expenses — meaning you have to cover the remaining cost. There also may be transfer or cancellation fees if you sell your car or end the contract early.

Few service contracts cover all repairs. Common repairs for parts like brakes and clutches generally are not included in auto service contracts. If an item isn't listed, assume it's not covered. Watch out for absolute exclusions that deny coverage for any reason. If a covered part is damaged by a non-covered part, the claim may be denied.

Or if the contract specifies that only "mechanical breakdowns" will be covered, problems caused by "normal wear and tear" may be excluded. If the engine has to be taken apart to diagnose a problem and during the process the mechanic discovers non-covered parts that need to be repaired or replaced, you may have to pay for the labor involved in the tear-down and re-assembling of the engine. You may not have full protection even for parts that are covered in the contract. Some companies use a "depreciation factor" in calculating coverage: When your car needs to be repaired or serviced, you may be able to choose among several service dealers or authorized repair centers.

Federal Trade Commission

Or, you may have to take it to the dealer you bought it from. That could be inconvenient if you bought the car from a dealership in another town. Find out if your car will be covered if it breaks down while you're using it on a trip or if you take it when you move out of town. Some auto service contract companies and dealers offer service only in specific geographical areas. Find out if you need prior authorization from the contract provider for any repair work or towing services.

Be sure to ask: Test the toll-free number before you buy the contract to see if you can get through easily. You may have to pay for covered repairs and then wait for the service company to reimburse you. If the auto service contract doesn't specify how long reimbursement usually takes, ask. Find out who settles claims in case you have a dispute with the service contract provider and need to use a dispute resolution program.

If this concerns you, you will want to know whether the authorized repair facility maintains an adequate stock of parts. Repair delays may occur if authorized parts are not readily available and must be ordered. Under the service contract, you may have to follow all the manufacturer's recommendations for routine maintenance, like oil changes.

To prove you have maintained the car properly, keep detailed records, including receipts. Find out if the contract prohibits you from taking the car to an independent station for routine maintenance or performing the work yourself. The contract may specify that the dealer that sold you the car is the only authorized facility for servicing the car.

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