The contract price is only the starting cost

A service contract may appear inexpensive until all possible charges are considered.

Total cost may include:

• The original contract price
• Financing interest
• Deductibles
• Service-call charges
• Diagnostic or inspection fees
• Shipping and transportation
• Uncovered labor or parts
• Maintenance needed to preserve eligibility

Compare the complete expected cost with the price of likely repairs and the product's replacement value.

What is a service contract deductible?

A deductible is the amount the contract holder must pay toward an approved claim before or while the provider pays its covered share.

The deductible may be:

• A fixed dollar amount
• A percentage of repair cost
• Different for network and nonnetwork providers
• Different for repair and replacement
• Waived under specified conditions

The agreement should explain how the deductible is calculated and collected.

Per-claim vs per-visit deductibles

The method used to apply a deductible can substantially affect the cost of repeated repairs.

Service-call charges

Home-system, appliance, HVAC, and similar contracts may charge a service-call or trade-call fee when a technician is dispatched.

The fee may be due:

• When the appointment is scheduled
• When the technician arrives
• Even when no covered failure is found
• For each separate trade or contractor
• Again when another visit is considered a new claim

Determine whether the service-call fee also serves as the deductible or whether both charges apply.

Diagnostic and inspection fees

Diagnosis may be required before the administrator decides whether the failure is covered.

The consumer may need to pay the diagnostic fee when:

• No covered failure is found
• The component is excluded
• The cause of failure is excluded
• The contract has expired
• The repair provider charges more than the approved allowance

Ask whether the diagnostic fee is reimbursed or credited toward the deductible after claim approval.

Shipping and transportation costs

Electronics, tools, portable appliances, and other products may need to be shipped to a service center.

The agreement may require the consumer to pay:

• Shipping to the repair facility
• Return shipping
• Packaging materials
• Insurance or tracking
• Pickup or delivery charges
• Vehicle towing or transportation

Confirm whether the provider supplies a prepaid label and who bears the risk of loss during shipping.

Labor-rate and repair-time limits

A contract may cover labor but limit the hourly rate or number of labor hours the provider will pay.

The consumer may owe a difference when:

• The repair provider charges a higher hourly rate
• The administrator uses a lower published labor allowance
• The repair takes longer than the approved time
• Diagnosis, programming, or calibration is treated separately
• Removal and reinstallation are excluded

Obtain an itemized estimate and authorization showing the covered labor amount before work begins.

Parts-price differences

The administrator may limit payment to the cost of an approved new, used, refurbished, remanufactured, aftermarket, or equivalent part.

A consumer choosing a more expensive original-manufacturer part may have to pay the difference.

Ask:

• Which part type is approved
• Whether shipping is included
• Whether related parts are covered
• Whether optional upgrades are owner-paid
• What warranty applies to the replacement part

Costs above benefit limits

A service contract may limit the amount paid for one claim, component, year, or the entire contract.

When repair cost exceeds the limit, the consumer may choose to:

• Pay the difference
• Accept a lower-cost repair
• Accept a replacement or credit
• Decline the repair

Confirm whether payment of the limit ends coverage for that component or exhausts the entire agreement.

Financing interest

A service contract may be added to a vehicle loan, retail installment agreement, credit account, or other financing.

Financing increases the total cost because interest may be charged on the contract price over the loan term.

Review:

• The cash price of the contract
• The financed amount
• The applicable interest rate
• The repayment period
• How cancellation refunds affect the loan

Canceling a financed contract may reduce the outstanding balance without automatically lowering the scheduled monthly payment.

Maintenance and eligibility costs

Required maintenance may remain the owner's responsibility even when the contract covers breakdown repairs.

Possible costs include:

• Inspections
• Oil, fluids, filters, and lubrication
• Cleaning and adjustments
• Software or firmware service
• Professional maintenance
• Records needed to prove compliance

These costs may be necessary to preserve eligibility and should be included when evaluating the contract.

How to calculate the practical cost of a claim

Add every amount the contract holder may pay:

1. The portion of the contract price allocated to coverage
2. Financing interest
3. The deductible or service-call charge
4. Diagnosis and inspection
5. Shipping or transportation
6. Uncovered labor and parts
7. Amounts above benefit limits

Compare this total with the provider's approved benefit and the cost of arranging the repair without the contract.

Questions to ask about deductibles and fees

1. How much is the deductible?
2. Does it apply per claim, visit, or component?
3. Do repeat repairs require another payment?
4. Is there a separate service-call charge?
5. Who pays diagnosis when the claim is denied?
6. Are shipping and transportation included?
7. Are labor rates or hours limited?
8. Can equivalent parts be used?
9. What is the maximum benefit?
10. Does reaching the limit end coverage?

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Frequently asked questions