When people hear the terms "service contract" or "extended warranty," most consumers think of repairing the engine. But there are other benefits a service contract may provide that are often overlooked or misunderstood.
Many states are actively changing their laws to expressly authorize these types of benefits for consumers. Adding coverage for these benefits can enhance the overall ownership experience, helping consumers avoid costly repairs and reducing frustration when problems arise. This article provides a basic understanding of these protection products and identifies key 2021 and 2022 legislation.
Types of Protection Products
There are several types of protection products that are expressly authorized within the definition of a service contract. These benefits can typically be offered within traditional service contract or as a stand-alone service contract. The following are a few coverages.
Tire and wheel (T&W). This provides coverage for tires and/or wheels that may encounter a road hazard, like a nail or pothole, that causes tire or wheel damage or failure. Tire and/or wheel repairs or replacements can be costly but are expressly allowed as a service contract benefit in most states.
Windshield repair. Annoying and possibly dangerous chip cracks that emerge from standard road hazards, such as an errant rock or pebble, are frequently not covered by your primary insurer or are not costly enough to breach your primary insurer's deductible. A service contract can provide coverage to repair such damage, often with no deductible.
Key fob. Those advanced devices that allow you to operate the locking system on your door, and many other features, are expensive to replace and prone to being lost, damaged, or sometimes stolen. Many states expressly allow key fob coverage to be sold as a service contract.
Paintless dent repair (PDR). This is coverage for the repair of dents and dings using suction and other processes that do not require any resurfacing or painting.
Excess wear and use (EWU). Unique to a leased car, those lease-end charges (such as interior rips or stains, exterior damage—such as missing parts or scratches, and mileage surcharges) can be costly but can be covered as a service contract in certain states.
Vehicle value protection (VPP). This is any product, service, or accessory applied to a motor vehicle and is specially designed to prevent loss, theft, or damage to the motor vehicle from a specified cause.
Many states have laws in place that expressly include these benefits in the definition of a service contract in some form, but an independent review of each state is critical to understand how a state would regulate these products. Regardless, for states that allow these service contract benefits, consumers have greater access to these products.
Key Legislation for Auto Service Enhancements
In 2021 and 2022, many states enacted, or have pending, laws that expressly authorize these types of benefits in the definition of service contract. Here is a summary.
Georgia (key fob, EWU, and T&W) effective on July 1, 2021
Maine (key fob and EWU) effective on July 1, 2021
North Dakota (T&W, PDR, windshield, key fob, EWU, and VPP) effective on August 1, 2021
South Dakota (T&W, PDR, windshield, key fob, EWU, and VPP) effective on July 1, 2022
Wisconsin (key fob, EWU, and VPP) effective on February 7, 2022
Wyoming (key fob, EWU, and VPP) effective on July 1, 2022
Pending (as of May 2022)
Connecticut (T&W, PDR, windshield, key fob, EWU, and VPP)
Massachusetts (T&W, PDR, windshield, and key fob)
New York (external EWU)
Pennsylvania (T&W, PDR, windshield, key fob, EWU, and VPP)
Vermont (T&W, PDR, windshield, key fob, EWU, and VPP)
These protection products are typically sold through automobile dealerships at the point in time a new or used vehicle is purchased. There is an active after-sale market where products can be sold directly by third-party providers, banks/lenders, credit unions, over the Internet, and other channels.
Purchasing coverage for protection products can dramatically enhance the ownership experience, reduce costly expenses, and limit frustration when a breakdown occurs. Depending on the state, the inclusion of other products in the definition of service contract enables broader product distribution and availability for consumers to help find these coverages. These types of products are usually inexpensive and may be financed alongside the purchase of your vehicle. Many states have appreciated the value of these products and enabled changes to the definition of service contract to enable easy access and availability for residents.
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Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI.
Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion.
If such advice is needed, consult with your attorney, accountant, or other qualified adviser.