What About Those Motor Vehicle Service Contracts?

What about those Motor Vehicle Service Contracts?

The Regulated Industries Unit of the Iowa Securities Bureau has been assigned administrative responsibility for Iowa Code Chapter 516E, the Motor Vehicle Service Contract statute. Therefore, we have prepared the following information for your benefit.

This publication is an attempt to provide you with information that you need to make an informed decision when considering the purchase of a motor vehicle service contract. The contracts are marketed by automobile manufacturers, by auto dealers and by after-market suppliers. The purpose of these contracts is to provide mechanical breakdown protection well beyond the expiration of the factory warranty. The purchase of a service contract best suited to your needs requires careful study and consideration.

What is a Motor Vehicle Service Contract?

Talk to any auto dealer. Most auto dealers will explain the merits of, and offer you the opportunity to buy, a service contract at the same time you purchase your vehicle or within a limited time following that purchase. Many of these contracts are provided by the manufacturer of the vehicle you have purchased. Most service contract companies offer a wide range of options available within each of their contracts. As an example, some of the contracts offer a choice as to the number of miles covered by the agreement. Contracts may protect your vehicle for 20,000, 50,000, 75,000, 100,000 miles or more. Some contracts cover engine components only. Other contracts offer bumper to bumper coverag and some may be structured to provide the coverage important to you.

So, this protection does compliment the factory warranty?

Yes. The factory warranty on your new vehicle provides protection for approximately 35,000 miles. At this point the factory warranty expires and the service contract becomes effective. Even though the protection provided by the service contract begins as of the date of purchase of the vehicle, little coverage is available until the factory warranty has expired. For example, if you have purchased a contract that offers 100,000 miles of protection, the service contract only covers your vehicle from 35,000 to 100,000 miles (65,000 miles of protection).

How do I know which Contract is right for my vehicle?

If you are planning to keep your new vehicle for several years, a motor vehicle service contract may be a wise decision. If you are planning to trade vehicles frequently, you may not need a service contract. If you decide that the service contract may be beneficial to you, the following comments may be helpful.

  • When considering the purchase of a contract, it is important to read and understand the extent of coverages offered.
  • Carefully study the exclusionary language to determine what is not covered.
  • It is also important to know that the contractual obligations of all service contracts sold in this state must be guaranteed by a reimbursement insurance policy issued by a company authorized to do business in Iowa. This guarantee provides a significant safety net should a service contract company become insolvent.
  • Lastly, cost and coverage comparisons of the various options available can prove to be most beneficial to anyone considering the purchase of a motor vehicle service contract.

Motor Vehicle Service Contract Tips

  • Consider whether a service contract is what you need.  If you buy new or relatively new cars and trade every 3 to 5 years this product may not be for you.  If you will have your car for a long time or would have difficult paying for major repairs, you may want to consider a contract.
  • Check with your dealer and/or your repair place.  Will they honor the contract and do they have any concerns or suggestions?  This particularly important if you are buying a contract through a direct mail offer.  Ask for and examine a brochure or contract BEFORE you purchase it.
  • Remember, if a part is not specifically listed as a covered item, the contract will probably not cover it.  Most contracts state that it is the company’s decision whether to repair or replace a part and that the part can be used or rebuilt.
  • All companies require proof that you have done proper maintenance.  If you do your own maintenance, you are often required to keep receipts as well as a log detailing the date and mileage of  when maintenance was performed.
  • Contact the Iowa Securities Bureau if you have questions or concerns.  Our agency is responsible for enforcing the motor vehicle service contract law and investigating consumer complaints.  You can also visit our website. 

Questions or Complaints?

If you have questions or complaints about the motor vehicle service contract, contact:

Iowa Securities Bureau
Regulated Industries Unit
601 Locust St. - 4th Floor
Des Moines, IA 50309-3738
Email: riu@iid.iowa.gov

For other questions, you may contact the following:

Better Business Bureau
505 - 5th Avenue
Des Moines, Iowa 50309