By Sonya Sellmeyer, Consumer Advocacy Officer for the Iowa Insurance Division
Service contracts are legal agreements that specify the terms and conditions for providing a specific service, and the responsibilities of each party. The Iowa Insurance Division (Division) regulates two types of service contracts: motor vehicle and residential service contracts also known as home warranties.
Iowans can purchase motor vehicle service contracts from a dealership, online, or from an unsolicited phone call, email, or mailing. These contracts assist with the cost of repair, replacement, or expense reimbursements when a motor vehicle has an operational or structure failure due to a defect in materials, skill of work, or normal wear and tear.
When purchasing a motor vehicle contract check the Division’s website to ensure the motor vehicle service company is licensed. Understand the coverage such as the electronics, powertrain, and the exclusions such as wear and tear. Before purchasing one of these contracts, consider the age of the vehicle, reliability, and annual miles driven. Always compare possible warranty options by coverage, deductibles, service network, and the cost. Ensure the service network has a wide variety of authorized repair shops that you can easily access. Motor vehicle contracts will only pay out to the coverage limits in the contract.
Residential service contracts are obtained from real estate transactions, online, or from an unsolicited phone call, email, or mailing. The purchase of the contract is to maintain, repair, or replace structural components, appliances, electrical, plumbing, heating, and air-conditioning systems in some residential properties. Residential service companies that are licensed to sell can be found on the Division's website.
Most residential service companies arrange for the performance of services; however, there may be times when you are provided the option to find your own service provider. If so, be sure to follow the directions to have the service authorized. If the service is not authorized by the service company, the claim will be denied. Before purchasing ensure there is not already coverage under appliance warranties or credit cards. Know if the service contract will replace or repair the item, and if they reduce the claim amount for depreciation. Residential service contracts will only pay out to the coverage limits in the contract so research that the limits are adequate.
Research any service contract provider’s reputation, customer reviews, and claim handling procedures. Always read the contract and the fine print, and cancel the contract if you feel the contract does not meet your needs. The contract should have provisions for a cancellation refund. Consider the cost of any service contract and how it fits into your budget. Always follow the terms of the contact for proper reimbursement of any claim. There is no need to purchase multiple contracts. You may be responsible for additional costs for expenses related to a repair or replacement, as both types of contracts may not cover the complete costs of the repairs or replacement.
Be aware of cold calls or mailers to purchase service contracts. The Division is here to answer questions about motor vehicle and residential service contracts and can be reached at 515-654-6600.