Extended Service Contracts: Five Myths Busted
False! If this "myth-conception" was true, why are new boat buyers pressed to purchase extended service contracts? With boat show season around the corner, now is a good time to get down to the nitty-gritty of service contracts — and the myths that surround them.
Extended service contracts are essentially a repair insurance policy that provides specific service guarantees for you after the warranty expires. You pay a premium against future claims. Some states (Florida, for example) view extended service contracts as a form of casualty insurance and, therefore, the state's insurance laws regulate them. In states where extended service contracts aren't viewed as insurance, they aren't regulated by any government agency and consumers may have little recourse if claims are mishandled or companies go out of business.
Here are some more myths...
Myth 1: Extended Service Contracts Are Warranties
Although they're often referred to as extended warranties, service contracts aren't warranties nor are they an extension of the manufacturer's warranty. They may sound the same but are quite different.
By law, express warranties (also known as written warranties) come free with a product and are the manufacturer's promise to make repairs should the product break. Extended service contracts are a product that provides maintenance and/or repair service. And they're not cheap — boat dealers often mark up extended service contracts 100% or more. In fact, dealers view them as great profit centers.
Myth 2: Extended Service Contracts Offer "Bumper To Bumper Protection"
Although the original manufacturer's warranty and the extended service contract may cover many of the same things, the obligations created by both are different. A manufacturer's warranty is a legal obligation to repair, replace, or refund the purchase price of the product if there are problems. An extended service contract provider is obligated to cover only what the contract states it will cover. "If the component is not listed as a covered component, it is not covered," states the contract offered by one major extended service company's contract. This includes even related parts, as the next example shows.
A BoatUS Member reported to us that he lost control of both engines because the Engine Room Interface Module (ERIM) failed. The member's extended service contract company denied the claim because they said the ERIM wasn't covered. They cover Engine Control Unit (ECU) breakdowns, but not the ERIM, even though the ERIM relays information from the ECU to the controls in the pilothouse.
Suggestion: before you buy extended service coverage, ask to see a copy of the actual contract (not just the promotional brochure) and read what's covered and what's not. Make sure you understand the terms.
Myth 3: Dealers Always Register Contracts
You bought the boat. It's time to take her out on the water. The dealer will take care of everything else, right? Sometimes, no. Nearly 25% of all extended service contract complaints report to BoatUS involve dealers failing to register the contracts.
Another BoatUS Member reported that she paid $1800 for an extended service contract when she bought her boat. When the engine had problems, she found that she didn't have coverage. The contract company itself had no record of the policy because the dealer had pocketed the premium.
When a new contract is purchased or an existing one is transferred from seller to buyer, there's a limited window for registering contracts with the service company (usually 30 days).
Most service contract companies give customers an ID card or similar identification. If you haven't received one (or any confirmation of your contract), it might be time to make some phone calls and find out the status of your application.
Suggestion: Contact the extended service contract company 20 days after the sale of your boat. This should be enough time for the dealer to have sent the information to the company. And it leaves you with 10 days to resolve the situation if they haven't. Also, if your boat still has its original warranty, make sure that your extended service contract doesn't overlap the warranty period. Why pay for an extended service contract when warranty coverage is free?
Myth 4: All Extended Service Contracts Are Created Equal
Like a school of fish, extended service plans tend to look the same. Look closer and you will find differences in coverage and cost of deductibles.
For example, most extended service contracts put a limit on how much they will pay out for a claim. If your engine is having constant trouble, there is a chance that your contract company might cancel your service plan. Different plans offer different limits. One service plan limits the payout to the suggested retail price of the engine when it was brand new, while another plan only pays up to $10,000. During a repair, with parts and labor adding up fast, it might not take long to hit that $10,000 mark. The goal is to find a plan that best benefits you.
Some contracts also provide additional coverage for charges like haul out for repairs, on-the-water towing if you break down, and delivery charges to have the boat taken to repair facility. Different plans have different coverages. Also, some extended service contract companies have different levels of service plans, from top-of-the-line to basic, at varying prices. You should comparison shop for coverage before you purchase one specific plan.
Tip: Ask other boat owners about their service contract experiences. Consider posting a message on the BoatUS Messageboards (http://my.boatus.com/forum) to hear what others have to say.
Myth 5: Buy A Used Boat, Buy An Extended Service Contract
You've found the perfect used boat but it has no warranty. Should you shell out an additional $2,000-$3,000 to buy a service contract to cover repairs if your boat breaks down?
There are two schools of thought. On one hand, there are people who swear by extended service contracts. "For me, it's about peace of mind," one member told BoatUS. This boat owner believes help offered by the contract outweighs the money spent.
On the other hand, there are those who feel that their claims were unfairly denied. Most plan exclusions give service contract companies plenty of "wiggle room."Take for example the boat owner who had three engines fail in three years. His extended service contract denied coverage for the third claim because it was a "duplicate failure." He was stuck with the bill. Another boat owner reports that when he submitted a claim to his extended service contract company for an engine coupler failure, they denied it, stating that the coupler was worn. Even though couplers are a "covered component," the contract didn't cover parts that fail due to wear and tear.
Suggestion: ask your fellow boaters about their experiences regarding extended service contracts. I'll bet you get a mix of the good and the bad.
When it comes time to buying that new boat, if you're going to purchase an extended service contract comparison shop the different plans available and read the fine print before you put your money down and sign on the bottom line.
If you have any questions about extended service contracts or to request a copy of the BoatUS Guide to Marine Service, a step-by- step reference tool for boat owners, call the BoatUS Consumer Protection Bureau at 703-461-2856 or e-mail email@example.com
This article was published in the August/September 2005 issue of Trailering Magazine.
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