Carson City, NV January 23, 2023
When you are shopping around for a
big-ticket item such as a new home appliance or a car, you will likely be presented
with the option to buy a separate service contract to protect your new purchase
for repairs or replacement. 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 and conditions of the service contract make financial sense
for you. We have provided answers to frequently
asked questions to help you make a more informed decision when it comes
purchasing a service contract.
is a service contract?
service contract is a contract or agreement that a consumer may purchase for an
additional cost from the sale of a product that provides protection for
repairs, maintenance or replacement due to a defect in materials, workmanship,
or normal wear and tear. Service contracts may be sold by a retailer or a
third-party administrator with coverage periods ranging anywhere from a few
months to several years. Service contracts are not insurance and differ from
warranties that are inclusive of the item’s purchase price. A few common types
of service contracts are home warranties, vehicle service contracts and
electronics protection/service plans.
it worth my money to purchase a service contract?
Consumers should read the service contract
in detail and make sure they understand and can adhere to ALL the terms and
conditions before purchasing. Consumers are often surprised by specific
exclusions, limitations or requirements contained in their service contract
when their claim for repair or replacement is denied. Ultimately fully understanding what your service
contract includes can save you money and help you make an informed financial
A few common limitations and exclusions to watch out for
– Many service contracts require products to be serviced on a regular basis for
claims to be approved. For example, you may be required to have your AC unit or
furnace serviced annually and have proof of maintenance, otherwise, if you have
a claim, it can be denied. Oftentimes consumers find themselves having to pay
out of pocket because they were not aware they needed to keep up with the
- “Cash in lieu” – This provision is seen frequently with home
warranties wherein the service contract provider can opt to give the owner a
cash sum in lieu of performing the repairs or replacement. This might occur if
there is a shortage of the provider’s “in-network” contractors available for
dispatch.However, consumers should be aware that the cash sum given
only covers the wholesale amount the contract provider would pay for parts and
labor, which may be significantly less than the full retail cost a consumer
would pay a contractor directly.
powertrain and bumper-to-bumper coverage options – We commonly hear from consumers with denied
vehicle service contract claims because they mistakenly thought a part or
repair was covered. There are typically three types of coverage options: drivetrain
coverage, which only covers transmissions, drive shafts and axles;
powertrain coverage, which adds coverage for the engine and bumper-to-bumper,
which is the most comprehensive coverage, but still may exclude parts such as brake
pads, wiper blades, fuses, tires, wheels, glass and ironically, bumpers. Understanding these
differences in coverage and choosing the best fit for your needs means you’re
less likely to be surprised by
out-of-pocket repair costs.
if I change my mind after purchasing a service contract? Can I get my money
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 the sale) to read the service contract and decide if you wish to
keep it or not. If after reading the fine print you decide you don’t want to
keep the contract, cancel before the “free-look” period is over because there
may be cancellation and transfer fees.
Pro Tip: If you
don’t want to pay for the contract before you read it, check out the Division’s
website for the “Service Contracts Look-up Tool” which contains a listing of
licensed Service Contract Providers and each service contract that is approved
for use in the State of Nevada. To view this tool visit: https://doi.nv.gov/Consumers/Service-Contracts/.
Are service contract providers regulated
by the Nevada Division of Insurance?
Although service contracts are not
considered to be insurance, under Nevada state law (NRS 690C), the Division
of Insurance is responsible for licensing and regulating service contract
providers. Before you purchase a service contract, you can verify if 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 click
on “Company Lookup.”
Note: warranties offered directly by the
manufacturer (as opposed to a third-party administrator or retailer) and
service contracts for items of less than $250 are not required 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 solicitation from a
company that you believe to be providing false or misleading advertising, or if
you simply have questions or concerns about a service contract or provider,
please notify the Division at email@example.com or contact our
Consumer Services section toll-free at (888) 872-3234.
About the Nevada Division
The State of Nevada Division of Insurance, a Division
of the Nevada Department of Business and Industry, protects the rights of
Nevada consumers and regulates Nevada’s $22 billion insurance industry. The
Division of Insurance has offices in Carson City and Las Vegas. For Fiscal
Years 2021 and 2022, the Division investigated 5,062 consumer complaints,
answered approximately 25,00 inquiries, and recovered over $8 million on behalf
of consumers. For more information about the Division of Insurance, visit DOI.NV.GOV.