Are consumers legally “protected” when they buy a Service Contract?
Approximately 37 states have enacted specific laws governing motor vehicle Service Contracts. In these states, companies offering Service Contracts typically are required to fulfill their financial responsibility to the consumer in one of the following ways: (1) insuring the program through a contractual liability or reimbursement insurance policy, (2) maintaining reserves and placing a deposit on file with the state, or (3) maintaining a minimum net worth of $100M. Many Service Contracts are backed by A+ rated insurers, who provide additional financial solvency on long-term contracts. Consumers can typically find the name and contact information of any insurer backing their particular program on their Service Contract. As with most laws, there may be exemptions from certain requirements. It is important for consumers to research the company offering the Service Contract as well as any insurer backing it. In many states, service contracts come with a “Free Look,” usually 30 days. If a
