Understanding Service Contracts

A service contract is a form of agreement that is typically found in the purchase of a major asset. When an individual buys a car or a major appliance, they are commonly offered a service contract template by the issuing retail store. For many consumers, service contracts offer the purchaser a distinct insurance policy that is aligned with the product's expected use.

A service contract template will differ based on the product purchased. However, in general, service contracts offer the purchaser an insurance policy to protect against repair hassles.

Service contracts are notably attached to the purchase of automobiles. It is estimated that nearly 50% of new car buyers purchase service contracts to protect against damage that is not covered by the product's warranty. Service contracts cover a specific part or function of the appliance or product.

For instance, in an automobile purchase, a service contract template can cover a specific function or part of the automobile such as the tires. The costs associated with service contracts deviate based on crucial variables such as the length and amount of coverage provided.

A service contract template is similar to a warranty. It provides coverage against repair or maintenance for a specific time period and for a specific function or part of the appliance. The major difference between a warranty and a service contract is that a warranty is included in the purchase price, while the service contract is sold separately and is an extra cost that provides additional coverage for the product.