Service Contracts: Do You Need One?

When you buy a big-ticket item, such as a microwave, stereo or television, you may be offered a service contract. Although often called “extended warranties,” service contracts are not warranties. Warranties are included in the price of the product. Service contracts come separately from the product, at an extra cost.

Buying a service contract is like buying “peace of mind” from repair or maintenance hassles. But before you buy, make sure you actually need one; you may not if it simply duplicates the product’s warranty coverage. The Better Business Bureau, along with the Federal Trade Commission, suggest you consider the following before purchasing a service contract:

What is covered by the service contract?  It may only cover certain parts of the product or specific repairs. Service contracts do not cover repairs resulting from misuse or failure to maintain the product properly. Also, you may be obligated to take certain action, such as notifying the company of problems, to insure that the service contract is not voided.

What will the service contract give you that the warranty will not? Before considering a service contract, make sure you understand your warranty coverage. Compare the coverage of your warranty to the coverage offered by the service contract to decide if the contract is worth the additional cost.

Is the product likely to need repairs? You may not benefit from the service contract if the product is unlikely to need servicing or if the potential of repairs is very low.

What other costs will you have? Service contracts, like insurance policies, often have deductible amounts. And there is a possibility that you may be charged each time the item is serviced. Some expenses are limited or excluded.

Where can you get service? If the service contract is offered by a local retailer or dealer, you may only be able to get local service. Consider the possibility that problems may develop while you are traveling or after you move away from the area.

Can you purchase a service contract later? You may be better able to decide if you need a service contract after you have owned the product for some time. Find out when the offer to buy a service contract expires. If possible, consider waiting until your warranty period expires to buy a service contract.

Before purchasing a service contract, it is important to read the contract thoroughly and not just rely on oral promises by a salesperson or a company brochure describing the coverage. Before making your final decision, compare several contracts, and contact your Better Business Bureau at 203/269-2700 ext. 2 for a liability report on the company you are considering.