Buying a vehicle service contract (VSC) or a similar repair agreement is a common practice among vehicle owners. These agreements offer coverage for future repairs, providing peace of mind and financial protection. However, it is essential to understand the different types of repair agreements available, the obligations of the parties involved, and your rights as a consumer. This guide aims to provide comprehensive information on buying and using VSCs and other repair agreements.
Types of Repair Agreements
When purchasing a repair agreement, the company responsible for covering the cost of repairs is called the “obligor.” There are three main types of obligors in the market:
1. Vehicle Service Contract Provider (VSCP) VSCs
VSCs with VSCPs as obligors are a popular choice. However, it is crucial to ensure that the backup insurance company’s name and address are mentioned in the VSC. Also, make sure to buy a VSC issued by a car or watercraft dealer licensed by the California Department of Motor Vehicles, as selling VSCs directly to consumers by phone or over the internet is illegal.
2. Dealer-Obligor VSCs
Some car dealers act as obligors themselves, selling VSCs directly to consumers. These “dealer-obligor” VSCs are similar to those issued by VSCPs, with a few differences. Firstly, the obligor in this case is the dealer, not a VSCP. Secondly, dealer-obligor VSCs provide the name, address, and phone number of an administrator who handles claims, cancellation refunds, and inquiries on behalf of the dealer-obligor. To ensure compliance, the administrator company must be licensed as a property & casualty broker-agent by the CDI.
3. Mechanical Breakdown Insurance (MBI)
MBI policies are sold by banks, credit unions, insurance agents, and insurance companies. Unlike VSCs, MBI policies are regulated by the CDI to ensure fair pricing and coverage. It is crucial to verify the licensing of the insurance company or agent before purchasing MBI over the internet.
What You Need to Know
Repair agreements include several essential terms that you should consider:
The Obligor: Unlike when purchasing a car, a repair agreement only provides you with a contract. It is vital to buy a VSC or MBI policy from a licensed dealer or insurance company to ensure proper coverage. Unlicensed companies often fail to honor valid claims.
The Price: The cost of a repair agreement depends on various factors, such as the type of car, mileage, covered repairs, and the contract’s duration. While car dealers can determine the price of VSCs, MBI policies have regulated pricing by the CDI.
The Duration: Repair agreements have expiration dates based on time or mileage. The duration can range from one year/twelve thousand miles to ten years/one-hundred thousand miles.
What Is Covered: Different repair agreements offer various levels of coverage. It is essential to understand the extent of coverage provided, including major components and additional services like towing, rental cars, and key fobs.
What Is Not Covered: Repair agreements explicitly mention exclusions and items not covered. It is crucial to read and understand this section carefully to avoid any misconceptions about coverage.
Routine Maintenance Required: Proper maintenance is crucial for claim approval. You must perform all routine maintenance required by the repair agreement and keep records to prove it. Failure to maintain the vehicle properly can result in claim denial.
How to Make a Claim
Repair agreements provide specific instructions on how to handle claims. It is essential to follow these instructions precisely to avoid claim denial. Promptly reporting the need for repairs to the obligor or claim administrator is crucial. For significant repairs, an independent inspector may be dispatched to assess the issue. You may also need to approve a “tear down” if requested by the obligor, which involves partial disassembly to identify the problem accurately. After inspection and approval, you will receive a claim authorization number that guarantees payment for the repair.
Backup Insurance Company
Some VSCs have backup insurance from a risk retention group. It is advisable to purchase a VSC with backup insurance from a company licensed by the CDI rather than a risk retention group. This ensures greater consumer protection as licensed insurance companies must adhere to strict regulations.
New Car Warranties
New car repairs are often covered by the manufacturer’s warranty that comes with the purchase. If a covered part breaks during the warranty period, the manufacturer’s warranty will cover the repair. New car warranties vary in duration and coverage, and most major repairs are typically covered. Remember that new car warranties do not apply to used cars.
Where and How to Buy
When considering the purchase of a repair agreement, take the following steps:
Do not rush into buying a VSC. Carefully read the entire contract, ensuring it complies with the law and provides the desired coverage. Pay close attention to exclusions.
Obtain a copy of the actual VSC or MBI policy, not just a brochure or summary. Read it thoroughly, understand what is covered, what is excluded, and who the obligor is.
Verify that the VSC contains the name and address of a CDI-authorized backup insurance company. Purchase the contract only if you can take a copy with you when leaving the dealership.
After purchasing, review the contract again, paying special attention to exclusions. If you change your mind, most contracts allow cancellation within 30 or 60 days for a full or partial refund.
What to do if Your Claim is Denied
If your claim is denied, take the following steps to address the issue:
Gather information from the obligor or claim administrator about the denial reasons. Ask for specific provisions in the contract that apply to your claim and the evidence supporting the denial.
Consult with the mechanic or service writer at the repair shop to understand their perspective. Ask them to put their evaluation in writing if possible.
If the mechanic disagrees with the denial, communicate this information to the obligor or claim administrator. Arrange a conference call or re-inspection to present the mechanic’s viewpoint.
If the obligor still refuses to pay, you may need to cover the repair costs yourself and seek reimbursement later. Write an appeal letter or email, attaching relevant documents, and explaining why you believe the repair should be covered.
If an insurance company denies your appeal, consider filing a complaint with the CDI or seeking legal assistance.
Final Reminders
Before purchasing a repair agreement:
- Obtain a sample of the agreement and read it carefully.
- Understand what the agreement covers and excludes.
- Compare VSCs and MBI policies for cost and coverage.
- Perform routine maintenance as required, saving all receipts and maintenance logs.
- Contact the backup insurance company if you encounter issues with claim denial.
- File a complaint with the CDI if the backup insurance company fails to address your complaint.
Resources
For further information and assistance, you can contact the following organizations:
- Bureau of Automotive Repair: Complaints concerning poor-quality auto repairs
- Arbitration Certification Program: Lemon Law information
- New Motor Vehicle Board: Manufacturer new car warranties and Lemon Law information
- California Department of Insurance (CDI): Insurance-related inquiries, complaints, and licensing verification
Remember, understanding the terms and conditions of your repair agreement is crucial for a positive ownership experience. By being informed and knowledgeable, you can make the best decisions for your vehicle’s future repairs and your financial well-being.
