Glossary of Extended Service Contract Terms
Here are some common terms you will need to know as you research extended service contracts.
Administrator
The company that authorizes and pays the repair facility for repair work to your vehicle. The administrator works with the repair facility to make sure your claim is handled properly. The administrator is also the one that handles cancellations and transfers. As they are the company that pays your claim, their quality of service is one of the most important factors in choosing a service contract company.
All Wheel Drive (AWD)
All four wheels are driven by the engine. AWD systems are superior to 4WD because they can be used under any road conditions. AWD systems use a center differential to allow the front and rear wheels to rotate at different speeds. AWD provides better traction than front or rear-wheel drive.
Auto Extended Service Contract
See Extended Service Contract
Basic Warranty
The specific terms established by each manufacturer to repair vehicles through a specified mileage and/or time period. All factory installed and many dealer installed parts are covered under this warranty. The manufactures provide three types of warranties. The first is the basic warranty or as most of us know it by the Bumper-To-Bumper warranty. This warranty provides coverage to all mechanical and electrical components of the vehicle for a specified period of time. The second is the powertrain warranty that covers the powertrain components for an extended period of time. The third is the corrosion warranty that covers sheet metal from corrosion for a specific period of time.
Better Business Bureau (BBB)
The Better Business Bureau (BBB) has long been a means consumers have used to check out a company. In order to participate in the BBB Online Reliability Program, a company must have a satisfactory complaint handling record, agree to participate in the BBB's advertising self-regulation program, agree to abide by the BBB Code of Online Business Practices, and agree to dispute resolution with the BBB. Most of the companies who participate in this program value their standing in the BBB, and tend to do a better job at handling complaints.
Bumper-to-Bumper Extended Service Contract
The most comprehensive coverage you can buy. It will cover all parts of your vehicle and will only exclude a small list. Because the coverage is so comprehensive it will only list the few parts not covered. Most similar to the manufacturer's basic warranty. This type of coverage is known as “Exclusionary” coverage by most service contract providers.
Certified Vehicle
Many vehicles sold used or off lease are Certified by the manufacturer. This means they have undergone a quality inspection process prior to the sale. Often, a limited Power Train warranty is attached to them. Most do not have extended or bumper-to-bumper warranties. There is no industry standard for Certification.
Claims Reserve Accounts
An insured account that the administrator will maintain to pay future claims.
Consumable Items
Parts such as tires, batteries, clutch plates and wiper blades that generally are not covered under any warranty.
Corrosion Warranty
Covers rust through perforation on sheet metal. Offered as original warranty on new vehicles. Extended service contracts do not cover corrosion.
Deductible
The amount that you must pay the repair facility for work when your vehicle is being repaired. Many plans are offered with a zero deductible option.
Drive Train
The components that transmit the flow of power from the engine to the wheels. The components include the clutch, transmission, driveshaft’s (or axle shafts in front wheel drive), U-joints and differential.
Drive Train Warranty
See Power Train Warranty.
Electronic Control Unit (ECU)
The heart of the engine management system of a modern car. Regulates fuel delivery, ignition timing, engine idle speed and on some vehicles the transmission shift points.
Emissions Warranties
The Federal Emissions Warranty guidelines are based on Federal regulations and apply to vehicles in all 50 states. Vehicles are covered by two types of emissions control system warranty, "Emission Defect Warranty" and "Emissions Performance Warranty". Depending on the state you live in, the Performance Warranty is for 3 years/50,000 miles.
The Defect Warranty is generally consistent with the manufacturer's bumper-to-bumper warranty with certain parts (catalytic converter and electronic emissions controls (PCM) for up to 8 years/80,000 miles. Please refer to your owner's manual for your exact coverage.
Extended Service Contract
A contract which protects the car owner against mechanical failures and breakdowns. Extended service contracts are often referred to as Vehicle Service Contracts. The extended service contract will pay for covered repairs after the manufacturer's warranty has expired.
Exclusionary Policy
The most comprehensive extended service contract available. It is typically referred to as a "bumper to bumper" policy. This particular policy lists components of your vehicle that are not covered under the warranty. If a part or component is not listed, then it is covered under an exclusionary policy. Most similar to new vehicle warranty.
Gray Market Vehicle
A vehicle not manufactured for sale in the U.S. They often do not meet U.S. standards and carry no manufacturer warranty. These vehicles are typically ineligible for extended service contracts.
Inclusionary or Stated Component Extended Service Contract
A policy that lists the components and parts that are covered by the extended service contract. If the component or part is not listed, then it is not covered.
In-Service Date
The date the Vehicle was purchased by the original owner and driven or the date the Vehicle was placed in use for rental, demonstration or other purposes.
Lemon Law
The general definition of a Lemon Law vehicle: A vehicle with (a) major, repeated problem(s) that has been repurchased by, or had its purchase price renegotiated with, the manufacturer. The state then earmarks these as Lemon Law or Buyback vehicles. These vehicles are ineligible for coverage.
Maintenance Guidelines
This is the normal, routine maintenance that is recommended by the manufacturer of your vehicle to keep the vehicle in optimum condition. These include such things as oil changes, tune-ups, checking fluid levels, tire rotations, wheel alignments, belts, hoses and others as described in your owner's manual.
Manufacturer's Warranty
This is the basic warranty that every new vehicle sold comes with. All factory-installed parts are covered against defects. Typical manufacturer warranties are 3 years or 36,000 miles. Check your manufacturer's warranty manual for warranty information or visit our Manufacturer's Warranty page.
Mechanical Breakdown Insurance (MBI)
A policy, contract, or agreement that undertakes to perform or provide repair or replacement service, or indemnification for that service, for the operational failure of a motor vehicle due to a defect in materials or skill of work or normal wear and tear, and that is issued by an insurance company authorized to do business in California.
Overheating
While no extended service contract company will cover overheating due to customer neglect. Some extended service contracts exclude repairs needed due to overheating period! As an example, many of us may think it is not important if a thermostat is covered. After all it is an $18 dollar part – we can live with that. But, unfortunately, that’s not the issue; it goes much deeper than that. In the world of extended service contracts, if the thermostat is not a covered component and it causes the engine to overheat thus destroying the engine, the engine would not be covered. That's because the thermostat was the reason the failure occurred. Thermostats account for over 30% of all overheating problems. By not providing coverage for thermostats, an extended service contract provider can lower their rates due to the fact that they will not have to pay many overheating related claims. Before buying an extended service contract, you should carefully review what is covered and not covered to see whether all overheating issues are excluded from coverage.
PowerTrain Warranty
A limited warranty from the manufacturer that covers certain parts of your vehicle's engine, transmission and drive train assembly. If any of these components fail while the vehicle is covered under the powertrain warranty, the manufacturer is responsible for the repair. These warranties cover only about 20% of the vehicle.
Rebuilt Title
See Salvage Title.
Recall
When a manufacturer recalls vehicles it has manufactured back to the dealership for specific repairs related to unplanned mechanical problems and/or safety issues. Recalls are usually voluntary and are made in conjunction with regulatory control of the National Highway Traffic Safety Agency (NHTSA). They can originate with the manufacturer or with the NHTSA. Repairs performed under a recall are usually free to the consumer.
Repair Facility
An authorized licensed repair facility located in the United States or Canada. This includes your dealership, local mechanic or national repair facilities.
Rental Benefit
The amount you will be reimbursed for actual expenses incurred for substitute transportation while your vehicle is being repaired.
Roadside Assistance
A program that provides you with assistance when your vehicle breaks down or when there is a vehicle emergency (towing, battery assistance, flat tire assistance, emergency lock out, or fuel, oil, fluid and water delivery.)
Salvage Title
A title issued on a vehicle where an insurance company has declared the vehicle a total loss. These vehicles were typically involved in a flood or severe accident. These vehicles are not eligible for extended service contracts.
Seals and Gaskets
Some extended service contracts exclude repairs needed due to a seal or gasket failure. This means that if a seal or a gasket is the reason the failure occurs the failure is not covered. As an example if a head gasket in an engine fails and lets coolant into the engine, which in turn will destroy the engine, the engine failure will not be covered because gasket was the reason the failure occurred. Before buying an extended service contract, you should carefully review what is covered and not covered to see whether seals and gasket claims are excluded from coverage.
Technical Service Bulletin (TSB)
This bulletin is produced by the vehicle manufacturer and alerts automotive technicians about specific service problem areas, repair procedures, and new service techniques for a vehicle. Thousands of these are issued each year.
Transferability
A vehicle having an extended service contract can have the service contract transferred to the new owner of the vehicle if the vehicle is sold privately for a modest fee. An extended service contract cannot be transferred to a dealer.
Travel Interruption Benefit
In the event of your vehicle is not being operable and has caused a delay en route and you are more than 100 miles from your home, this is the amount you will be reimbursed per day for restaurants and lodging.
Vehicle Identification Number (VIN)
Your VIN is located in several areas and is a unique 17-digit identifier of your vehicle.
Wear and Tear
Some extended service contracts exclude repairs needed due to "wear and tear" However, a large number of vehicle repairs are needed because a part wears out prematurely versus actual breakage. The more miles on a vehicle when a repair becomes necessary, the more likely it is that the repair will be needed because a part wore out, rather than because the part broke due to poor manufacturing. Again, some extended service contracts do not cover parts that wear out.
Most extended service contracts and policies define "mechanical breakdown" as a defect in parts and workmanship as supplied by the manufacturer, or a defect that makes the part unable to perform the function for which it was designed. Extended service contracts that exclude wear and tear will not cover repairs needed because a part's performance has gradually deteriorated because of normal wear and tear, unless a mechanical breakdown has occurred.
Before buying an extended service contract, you should carefully review what is covered and not covered to see whether wear and tear claims are excluded from coverage. If they are, you might want to consider buying an extended service contract that does not exclude wear and tear claims. That way, if it is not clear whether a repair is needed due to a manufacturing defect or simple wear and tear, it is more likely that the extended service contract company will pay for the repair. It is a mistake to assume that a repair agreement will cover every repair your vehicle may need.
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