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Service Contracts/Extended Warranties

A service contract refers to an extended warranty, service agreement, or a maintenance agreement. A service contract is a prolonged warranty offered to consumers by a warranty administrator, a retailer, or a manufacturer and are regulated by the Division of Insurance as an insurance product.

Service contracts are usually offered by a vendor at the point of sale of a product, and are typically of interest to a consumer when the purchase is expensive and there is financial risk if the product fails and needs to be repaired or replaced. Another valuable feature is when coverage extends beyond manufacturer’s defects to include defects that may arise during the lifetime of the product, such as accidental damage or break-down due to wear and tear. These are not manufacturing defects and therefore not normally covered by the manufacturers’ guarantee.

It is important for consumers to read and understand the terms and conditions offered at the point of sale. Generally manufacturers automatically provide limited warranties against workmanship or defects for a set period of time. A service contract claiming to offer 5 years of extended coverage may only be providing 4 years of coverage beyond the manufacturer’s typical 1-year warranty that comes free with a purchased product.