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How are Vehicle Service Contract Claims Paid? [Top 5 Things You Need to Know]

What is Vehicle Service Contract?

A Vehicle Service Contract (VSC) is a comprehensive plan that pays for unexpected mechanical failures and repairs. It is not to be confused with a warranty, as it is a separate service in which the VSC provider promises to pay for the repairs covered by the specific policy. VSCs are designed to protect consumers against unexpected, costly repairs to their vehicle, and may be purchased at any time, including when a consumer refinances.

When considering a VSC, it is important to negotiate, shop around, and read the contract carefully. It is also important to make sure that the coverage offered will give the consumer value for their money and that the specific repairs they are likely to need in the future are covered in the agreement. Finally, when the vehicle experiences a mechanical breakdown or failure the process typically involves contacting the provider’s claims center prior to repairs and working with a service center to ensure payment and the repair of the vehicle.

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What are the Benefits of Having a Vehicle Service Contract?

1. Repairs Covered without Having to Reimburse

What types of repairs are covered without having to reimburse under a vehicle service contract? Generally, vehicle service contracts cover repairs to the engine, transmission, drive axle, suspension, brakes, electrical, air conditioning, and heating, fuel system, emission control, and all factory-installed parts, as well as emergency roadside assistance, travel expense reimbursement (not available in New York state), rental reimbursement, and transferable and cancelable features.

2. Convenience of One-Stop Shop for Repairs

Having a vehicle service contract enables customers to receive repairs at one location due to the flexibility it provides in where repairs can be made. Most vehicle service contracts allow customers to have their car repaired at their local dealership or any ASE certified garage. This eliminates the hassle of having to take a car to multiple places for repairs and gives customers the peace of mind that their repairs will be covered. Additionally, the repair shop where customers take their car will submit their claim and the costs of parts, labor, and taxes associated with the auto protection plan are paid upfront, directly to the repair shop, so there is no need to wait for reimbursement. With the convenience and flexibility of a vehicle service contract, customers have the assurance that they’ll be able to get the repairs they need at a place they know and trust.

3. Coverage for Mechanical Defects and Manufacturing Defects

A vehicle service contract (VSC) provides coverage for mechanical defects and manufacturing defects. Mechanical defects occur when a part in a car fails due to normal wear and tear. Manufacturing defects occur when a part in a car fails because of a flaw in the design or assembly of the car. VSCs typically cover both types of defects. The specific repairs covered by the VSC depend on the contract, but may include repairs to powertrain components, brakes, suspension, electrical systems, and other mechanical and manufacturing defects. Additionally, some VSCs provide additional coverage for towing, rental cars, and roadside assistance.

4. Ability to Get Ahead of Major Repairs

Having a vehicle service contract can help you get ahead of major repairs and save money in the long run. These contracts generally provide coverage beyond what a standard warranty would cover, covering components and services that may be needed to repair your car. Additionally, most vehicle service contracts come with a deductible that only needs to be paid one time on each repair visit, no matter how many different items are fixed. This means that you only need to pay the deductible once, even if multiple repairs are needed. The cost of a VSC can be spread out over the length of your car loan, making it more affordable and helping to budget for repairs. Furthermore, most service contracts are transferable and can be included in the resale value if you decide to sell or trade-in your car before you need a repair. With these benefits, a vehicle service contract can help you get ahead of major repairs and save money in the long run.

5. Peace of Mind Knowing the Car is Protected

Having a vehicle service contract protects car owners from unexpected and costly repairs. The contract will pay for repairs if the selling dealer cannot make them. The contract also offers other benefits such as nation-wide protection, toll-free assistance, rental reimbursement, and emergency roadside assistance. The contract is transferable and cancelable, and car owners can even get a car handbook to help them make the best decision when purchasing a car. Additionally, the contract can help protect consumers from potential car law violations, as well as provide protection for vehicles that have a history of accidents, repairs, dents, and dings. Furthermore, customers can take advantage of discounts and other incentives such as $300 off any new policy. Ultimately, a vehicle service contract offers peace of mind and assurance that car owners will be able to get the repairs they need at a place they know and trust.

6. Saves Money Compared to Car Insurance

Having a vehicle service contract (VSC) can save money compared to a traditional car insurance policy. While both offer financial protection against the cost of vehicle repairs, the types of coverage they provide are different. Insurance policies typically cover negligent behavior or an intervening event that causes property and/or liability damage. VSCs, on the other hand, usually cover operational failures due to defects in materials, workmanship, or normal wear and tear.

Purchasing a VSC when your car is newer and in better condition can help lower costs, as it costs less to cover a vehicle in tip-top shape than it does for an older car that’s fallen into disrepair. Multiple tiers of plans are available to meet different budgets and needs. Some plans are also tailored specifically for older or high-mileage cars, and the cost of the vehicle service contract can be paid upfront or included in a car loan.

The main downside of a VSC is if you never actually need to use it. You would have paid for a plan without using its benefits, whereas an insurance policy can provide financial protection regardless of whether or not you file a claim. Additionally, VSCs are regulated differently than insurance policies, meaning that some laws and regulations won’t apply.

7. Ability to Get Discounts for Early Payment

Having a vehicle service contract can help you get discounts for early payment. When your car is in better condition, you can lock in the cost of a vehicle service plan at a lower rate than if the car was older and in disrepair. This allows you to spread the cost of the contract across the length of your car loan and make it easier to budget and afford, effectively covering the cost of repairs without the unexpected dent to your savings.

8. Ability to Take Advantage of Roadside Assistance Programs

Having a vehicle service contract can help with roadside assistance programs by providing customers with peace of mind in the event of a breakdown, malfunction, wear and tear, or the unexpected. It covers toll-free assistance, rental reimbursement, emergency roadside assistance, travel-expense reimbursement, and other convenient payment terms. Furthermore, the policy is transferable and cancelable, and customers can find their claims and roadside assistance number in their policy. As an added bonus, customers can also take advantage of national accounts with AAMCO, Firestone, Pep Boys, and NTB Tire, as well as be reimbursed for any repairs needed outside of normal business hours. Ultimately, having a vehicle service contract can help customers save money on costly and unexpected vehicle repairs and provide them with the necessary help and coverage when they need it.

9. Ability to Get Support from Manufacturer Warranties

Having a vehicle service contract can help with manufacturer warranties by providing additional protection and peace of mind. The service contract can cover repairs and maintenance not covered by the manufacturer warranty, ensure that the customer is able to receive quality service for their vehicle, and help protect against unexpected costs that may arise due to breakdowns, malfunctions, wear and tear, or the unexpected. Additionally, custom mechanical repair vehicle service contract programs can help generate essential revenue for dealerships, as well as bolster customer satisfaction.

10. Ability to Save Time by Going Directly to Repair Shops

Having a vehicle service contract can save time and money when taking your car to a repair shop. Unlike a warranty, a vehicle service contract allows you to take your car to any ASE certified garage or repair shop of your choice. This eliminates the need to return to the dealership where the service contract was purchased, allowing you to take your car to a mechanic you trust. The repair shop can then submit your claim directly to the service contract provider and the cost of the parts, labor, and taxes associated with the repair are covered. Additionally, most vehicle service contracts come with a deductible, meaning you don’t have to pay multiple times for different repairs on the same visit. This eliminates the need for out of pocket expenses and waiting for reimbursement.

What are the Things You Need to Know About Vehicle Service Contract Claims?

1. The Service Contract Claims Process

The service contract claims process is designed to be quick and easy for consumers. The first step is to return to the issuing dealer of the service contract if possible for repairs. The Service Contract Act sets out specific requirements for providers and administrators to adhere to when offering or selling service contracts.

Once you get to the issuing dealer, the process is fairly straightforward. The coverage of the service contract will begin as stated in the “Service Contract Period” section and parts, labor, and fluids for covered components (as specified in the contract) are all covered, minus an applicable deductible.

If the issuing dealer is not an option, you can call the toll-free number indicated on the bottom of your contract and a claims analyst will assist you. The claims analyst will help you to determine the steps needed to begin the claims process. Payment (minus a deductible) will be made directly to the repair facility.

2. Who Pays for Vehicle Repairs?

Answer: Vehicle service contracts can cover the cost of unexpected auto repairs with minimal upfront costs, with payment typically made to an alternate repair facility. Most vehicle service contracts come with a deductible, and the repair facility needs to diagnose the concern to determine what component caused the failure. Vehicle owners can also take advantage of rental reimbursement, emergency roadside assistance, and travel-expense reimbursement (not available in New York state). All authorized benefits are paid directly to the repair shop or contractor using a direct credit card payment after the repair facility provides confirmation of the completed repair and an invoice. Maintenance records may be required to be eligible for reimbursement.

3. What are Vehicle Service Contracts?

Vehicle service contracts, or VSCs, are comprehensive plans that pay for unexpected mechanical failures and repairs. They are not warranties, but rather a separate service in which the VSC provider promises to pay for the repairs covered by your specific policy. Vehicle service contracts are designed to protect consumers against unexpected, costly repairs to their vehicle, and can be purchased from the manufacturer, dealership, or third-party companies. Different contracts have different coverage levels, and it is important to read and understand the terms and conditions of the agreement before purchasing.

4. What is Covered by Service Contracts?

Service contracts cover automotive repairs that may be required after a manufacturer’s warranty expires, such as repair, replacement, or maintenance of property due to a defect in materials, workmanship, or normal wear and tear. This may include parts, labor, and/or sales tax. However, repairs due to accidents, or wear and tear are not usually covered, and coverage may lapse if you do not make the required payments or if you fail to do the basic maintenance on your car that the contracts often require.

5. Vehicle Service Contract Scams

Vehicle service contract scams can take many forms, from exaggerated or false promises to undisclosed fees and hidden terms and conditions. Here are some common examples:

  1. Pushy sales tactics. Some service contract providers may try to rush you into signing up for a contract by suggesting the offer is time-sensitive. Be wary if the provider does not allow you to take the time to read the fine print carefully.
  2. False promises. Some service contract providers may make false promises about the coverage they offer, or claim that repairs are covered when in fact they are not. Make sure you read and understand the terms and conditions of the contract before signing.
  3. Hidden fees. Some service contracts may come with hidden fees that are not clearly disclosed. Make sure you understand any additional fees you may be required to pay.
  4. False advertising. Some service contract providers may advertise seemingly comprehensive coverage, but then provide a less comprehensive service contract when you sign up. Make sure the coverage you are promised is the coverage you receive.
  5. Deceptive language. Some service contracts may be written in deceptive language that is difficult to understand. Take the time to read the terms and conditions carefully and make sure you understand what is and is not covered.

6. Understanding the Fine Print of the Contract

When purchasing a vehicle service contract, it is important to be aware of the fine print details of the contract, including what is and is not covered. The contract must allow the service contract holder to return the contract within at least 20 days if mailed to the holder or 10 days if delivered with the covered item, and refund the entire purchase price and sales tax if no claim was made under the contract. Additionally, the holder must be allowed to cancel after the period above or after making a claim and receive a pro rata refund, less any claims paid, subject to an administrative fee up to 10% of the provider fee. The contract must also be in clear and understandable language in an easily readable font size, state the name and address of the provider, the seller, and the administrator, state the total purchase price of the service contract, state whether or not a reimbursement insurance policy covers the contract, state the terms concerning cancellation of the contract, specify the merchandise and service to be provided, including limitations, exceptions, or exclusions, and state any restrictions on the transferability of the contract. Finally, the contract should include all the holder’s obligations, such as following owner’s manual instructions and protecting the item against further damage.

7. Comparison Shopping for Service Contracts

Step 1: Check your car’s paperwork or contact your car’s dealership or manufacturer to determine if you already have a service contract.

Step 2: Contact the Minnesota Department of Commerce to make sure the service contract provider is registered and insured (800-657-3602).

Step 3: Read the fine print of the contract and be aware of any pushy sales tactics.

Step 4: Consider the total cost of the contract, including any deductibles that may apply.

Step 5: Compare the coverage and benefits of different service contracts to find the one that best fits your needs.

Step 6: Research the company providing the contract and check its reviews with the Better Business Bureau to ensure its reliability.

Step 7: Compare the terms of different service contracts to determine which one offers the best value for money.

Step 8: Ask questions about any hidden costs or exclusions to make sure you understand the details of your contract.

Step 9: Once you’ve made your decision, ask for a sample contract to assist you in making your purchase.

8. Roadside Assistance Programs

Roadside assistance programs are designed to provide protection and peace of mind in the event of vehicle breakdowns or unexpected problems related to your car. These programs typically cover emergency towing and roadside services, rental car assistance, travel-expense reimbursement (except in New York State), and transferable and cancelable coverage.

In the event of a mechanical breakdown, roadside assistance programs may come into effect when a repair facility is unable to make the repair, and payment can be made to an alternate facility. This means that you can rely on reliable, toll-free assistance and payment terms, and rental reimbursement in case of a breakdown. Additionally, many roadside assistance programs also offer emergency roadside assistance and travel-expense reimbursement in some areas.

These programs are beneficial for customers because they provide peace of mind in case of a breakdown and also provide financial protection against costly and unexpected repairs. They also give sellers the opportunity to increase their revenue, fixed operations profitability, and after-sales performance by offering custom mechanical repair vehicle service contract programs.

Overall, roadside assistance programs are a great way to gain protection and assurance in case of a mechanical breakdown. They provide customers with financial protection and sellers with the opportunity to increase their revenue, ultimately leading to improved customer satisfaction and business performance.

9. Manufacturer Warranties and Coverage

Manufacturer warranties are managed and backed by the car’s manufacturer and are included in the price of the car, covering replacement and repair for a wide variety of problems for a lengthy period of time. On the other hand, vehicle service contracts are an agreement between a provider and a car owner, often requiring out-of-pocket payments for the contract, covering replacement or repair only of certain parts, only for a certain period of time, and only if certain criteria are met. Vehicle service contract coverage is meant to fill the gap or take over when your existing warranty expires, potentially saving you money on minor repairs over the term of the contract.

10. Notification, Claims and Adjustment Process

Step 1: Before purchasing a vehicle service contract, review the terms and conditions to ensure that you understand the amount of the deductible payment and how claims are paid.

Step 2: When you have a claim, contact the claim administrator or contract representative for more information. Ask for details on which specific provisions of the repair agreement are being used to deny your claim and what evidence the administrator has of why those provisions apply to your repair.

Step 3: Get as much information as possible from the mechanic or service writer at the repair shop where your car will be fixed. Ask questions about any disagreements they may have with the administrator and have them put their evaluation in writing or make detailed notes of the conversation.

Step 4: If the administrator still refuses to pay for the repair, you may need to pay for some or all of the repair yourself and try to get reimbursed later. Make sure the administrator has either inspected the car or told you they do not need to inspect it before having the repair started.

Step 5: After the car is repaired, write an appeal letter or email. Explain why you believe the repair should be covered and why the exclusions mentioned by the administrator do not apply. Include copies of all relevant documents.

How are Vehicle Service Contract Claims Paid?

Vehicle service contract claims are paid in a variety of ways, depending on the terms of the agreement. Generally, the process begins with the contract holder filing a claim with the service contract provider and potentially having to pay a deductible. Once the claim is authorized, the contract holder can then choose the repair facility of their choice, provided it meets the requirements of the service contract. The provider will then pay the repair facility directly for any covered parts and labor, or reimburse the contract holder for any covered and authorized expenses. In some cases, the contract holder may also be responsible for additional costs that aren’t covered by the service contract.