Over the next few weeks, we will be sharing a series of Extended Warranty Basics blog posts in case you want to follow along. This week we are talking about the term “Extended Warranty” actually means and the players involved in any extended warranty contract.

The Merriam-Webster Dictionary defines a “warranty” as:

“a usually written guarantee of the integrity of a product and of the maker’s responsibility for the repair or replacement of defective parts”.

That’s a fairly standard definition and implies a “warranty” is something issued by the manufacturer of a product AND it is included in the price of the product.

What we are talking about here are technically “service contracts”. The purpose is basically the same as a warranty, but it may or may not be issued by the manufacturer, it provides coverage for an extended period beyond the manufacturer’s warranty, and, of course, there is an additional fee or “premium”.

However, for our purposes here, we will use the terms “extended warranty” and “extended service contract” interchangeably.

The Players Involved

In the “extended service contract” business, it’s important to know who’s who in the process.
  1. Buyer – This is you, the purchaser of the extended service contract.
  2. Contract Provider/Seller – The company that completes the extended service contract application and is responsible for calculating the contract quote and collecting the fee from the Buyer. This could be a manufacturer, a dealer, or an independent warranty provider.
  3. Administrator – The company that actually pays the claims and makes the final decision on what is covered and not covered under the contract. The Administrator usually works directly with the Repair Facility. The Administrator takes the largest portion of the “premium” (or fee) and places it in a “claims reserve account” to pay future claims.
  4. Insurance Company – The company that is financially responsible for making sure claims get paid even if the Administrator were to become insolvent. It’s important to ensure the financial status of the insurance company backing the “claims reserve account” is solid.
  5. Service Repair Facility – This is the company (i.e. Truck dealer, Truck service center, mobile Truck tech, etc.) where you have repairs completed. The Repair Facility submits a repair plan and estimated costs to the Administrator for pre-authorization.

Interested in learning more? Click here to view Part 2 of Extended Warranty Basics.