CARSON CITY – If you’re looking for an expensive item like a new appliance or car, chances are you have the option of purchasing a separate service contract to protect your new purchase for repairs or replacements. 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 of the service contract make financial sense to you.
We’ve provided answers to frequently asked questions to help you make a more informed decision when purchasing a service contract.
What is a service contract?
A service contract is a contract or agreement that a consumer can acquire for an additional cost from the sale of a product that provides protection for repairs, maintenance, or replacement due to wear and tear in materials, workmanship, or normal wear and tear. Service contracts can be sold by a retailer or an external administrator for terms ranging from a few months to several years. Service contracts are not insurance and are distinct from warranties that include the purchase price of the item. Some common types of service contracts are home warranties, vehicle service contracts, and electronics protection/service plans.
Is it worth my money to take out a service contract?
Consumers should read the Service Agreement in detail and make sure they understand and comply with ALL the terms before purchasing. Consumers are often surprised by certain exclusions, limitations, or requirements in their service contract when their repair or replacement claim is denied. Ultimately, you can save money and make an informed financial decision by fully understanding what your service contract entails.
Some general limitations and exclusions to be aware of are:
Regular maintenance requirements – Many service contracts require products to be serviced regularly in order for claims to be approved. For example, you may be required to have your air conditioner or furnace serviced annually and provide proof of service, otherwise a claim may be denied. Often consumers have to pay out of pocket because they were unaware that they have to keep up with routine maintenance.
“cash instead”– This provision is often seen in home warranties, where the service contract provider may choose to pay the owner a sum of money rather than perform the repair or replacement. This can occur if there is a lack of deliverable “in-network” contractual partners of the provider. However, consumers should be aware that the cash amount quoted only covers the wholesale amount that the contract supplier would pay for parts and labor, which may be significantly less than the full retail cost that a consumer would pay directly to a contractor.
Powertrain, powertrain and bumper-to-bumper cover options – We often hear from consumers with vehicle maintenance contract claims being denied because they mistakenly thought a part or repair was covered. There are typically three types of coverage options: Powertrain coverage, which only covers transmissions, driveshafts, and axles; Powertrain coverage which adds coverage for the engine and bumper to bumper, which is the most comprehensive coverage but can still exclude parts such as brake pads, wiper blades, fuses, tyres, wheels, glass and ironically bumpers. By understanding these differences in coverage and choosing the best solution for your needs, you are less likely to be surprised by repair costs.
What happens 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 sale) to read the service contract and decide whether you want to keep it or not . If after reading the fine print you decide you don’t want to keep the contract, cancel before the end of the free look period as cancellation and transfer fees may apply.
Pro tip: If you don’t want to pay for the contract before reading it, visit the department’s website for the “Service Contracts Look-up Tool,” which has a list of licensed service contract providers and each approved service contract for use in the state of Nevada . To view this tool visit: https://doi.nv.gov/Consumers/Service-Contracts/.
Are service providers regulated by the Nevada Division of Insurance?
Although service contracts are not considered insurance, under Nevada state law (NRS 690C), the Department of Insurance is responsible for licensing and regulating service contract providers. Before entering into a service contract, you can verify that 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 clicking “Company Search.”
Note: Warranties offered directly by the manufacturer (as opposed to a third party or retailer) and service contracts for items under $250 do not need 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 a solicitation from a company that you believe is providing false or misleading advertising, or if you simply have questions or concerns about a service contract or provider, please notify the department at [email protected] or contact our Consumer Services area toll free at (888) 872-3234.