Are service contracts really needed? Do service contracts make sense for you?
To help clear some of the confusion, here are some of the facts.
Extended Warranties
“Extended “warranties” you have to buy aren’t really warranties; they’re service contracts.
A true warranty offers broad coverage and has the weight of state and federal warranty laws behind it. Service contracts, on the other hand, are really insurance policies generally underwritten by third parties, not manufacturers, and are regulated as such in most states.
Limitations
Service contracts have limitations that true warranties don’t. A service contract may cover a broken alternator ($650). But it probably won’t cover consequential damage (when one part causes another to be damaged), so it won’t pay if the alternator damages the engine control unit ($1,300), leaving an owner to pay the difference. Know the difference!
Out of Pocket
Having a service contract won’t protect you from out-of-pocket expenses. Service contracts, like health-insurance policies, usually come with deductibles, often between $25 and $50 per incident. Many contracts don’t pay to remove the engine from the boat or have the boat hauled if it’s required for repairs, so there may be additional expenses for that.
Manufacturer’s Warranty
Most service contracts aren’t backed up by manufacturers. Third-party insurance companies usually write the contracts, and manufacturers and dealers typically won’t step in to help if there’s a problem. On the other hand, factory-backed programs have agreements with their dealers; the factory is ultimately responsible, so you should expect better service when there’s a problem.
Periods of Coverage
You may be paying for coverage you don’t need. If you buy a third-party service contract when you buy a new boat, it won’t apply during the manufacturer’s warranty. That means that if you buy a three-year contract on a boat with a one-year warranty, the contract may cover only the last two years. Many service contracts offer a nine-month to one-year window for signing on.
Who Makes or Saves the Money
Service contracts are usually moneymakers for dealers. Some contract plans administered by independent companies allow retailers to mark up contracts more than 100 percent over the actual cost they pay to the service-contract company. Don’t forget, though, that service-contract prices are a negotiable part of the sale.
Pre-Authorization
Independent service contracts require pre-authorization before starting repairs. While that’s fair, some companies may require you to use their network of shops, just like healthcare PPOs, and there may not be a facility in your area. Manufacturer-backed service contracts usually perform more like warranties — simply bring in your engine for service, and the dealer takes care of all the paperwork and billing.
Transfer-ability
Most service contracts are transferable, for a fee. A new owner may need to pay a prorated amount of the contract. In that case, the seller may get a refund of the same amount, which can be used as part of the negotiations.
Can You Cancel
You may be able to cancel the contract within 30 days of buying a boat. Typically, you’ll pay a prorated amount plus a fee. Review the company’s contract to see how it works.
Summary
Most defects in new boats and engines show up within the warranty period, so spending money up front on a service contract may not make sense for most new boat owners.