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Service Contracts
When considering the purchase of a service contract, it is important to weigh the costs of the contract against the cost of possible repairs of the product. Also, compare the service contract to the manufacturer's warranty to ensure that there will not be wasteful overlapping coverage. Be aware of vaguely worded exclusions or limitations in coverage or overburdensome maintenance requirements which, if not followed, would allow the company to deny coverage. Find out how repairs are paid for and if you must obtain prior authorization.

Ask who is backing the contract financially: the dealer, an independent firm, or an insurance company. (Some states require companies selling service contracts to have back-up insurance in case the company goes out of business.) Most importantly, make sure you see the actual contract before buying. You cannot get the complete provisions of a contract only from reviewing a brochure.

Further Information
Standards and Practices Report:
Service Contracts

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