What is an extended service contract and should I purchase one?
Generally speaking, it is an insurance policy. The policy underwriter’s Actuary Department (this department is made of many smart people that love to crunch numbers and lots of them) gathers data from a variety of claims, much like warranty claims or insurance claims. The claims received from their customers, or better known as policy holders, are analyzed by combining similar issues and their associated repair costs. The individual claim items and occurrences are combined to create a total cost per unit. The insurance carrier then spreads this “risk” over their many policy holders. Since the risk is spread over thousands of customers, an individual unit’s cost of repair, if higher than the average, is mitigated by the other policy holders. Now,does this sound like an insurance policy? It should, as it is. Nearly all extended service contracts and regardless of whose nameplate is on the brochure, are underwritten by insurance companies. These insurance companies use the same risk manag
