What is a Vehicle Service Contract?

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A vehicle service contract gives you extended coverage for vehicle repairs. It is similar to a warranty but provides extended repair coverage after the original car warranty expires.
Even if you have a vehicle service contract, you will still have to purchase car insurance. Unlike insurance, vehicle service contracts do not cover repairs that result from accidents. For this reason, a good insurance policy might provide more value than a vehicle service contract.
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While a vehicle service contract is no substitute for insurance, it can still be of value. Read on to find out how.

What is a vehicle service contract?

A vehicle service contract provides coverage for parts or services - usually after a car’s manufacturer or dealership warranty expires. You can purchase vehicle service contracts through either a manufacturer, dealership, or warranty administrator.
If your car needs repairs that are covered by your vehicle service contract you can submit a claim to the warranty provider. If your claim is accepted, the service provider will transfer your payout to the service shop you are using to be put toward your repairs.
Some vehicle service contracts must be purchased within a certain time frame to take effect. For example, your dealership might only provide a vehicle service contract if you purchase it within the first year of owning your car.

What does it cover?

Vehicle service contracts often differ in the features and services that they offer, so it is important to carefully read a vehicle service contract before signing. In most cases, services that are not listed will not be included. Be sure to read over the list of excluded services to get a better idea of your coverage limits.
Service contracts usually cover important parts of your car that are likely to break after a factory or dealership warranty expires. Powertrain components like the engine and transmission are often included in service contracts, as well as air conditioning.
Vehicle service contracts may also come with additional assurances like rental reimbursement and roadside assistance too.
Key Takeaway Vehicle service contracts cover certain types of repairs or services and usually come into effect once the warranty expires.
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How much do vehicle service contracts cost?

Most vehicle service contracts will cost somewhere between $350 and $750 a year. You will probably pay a fee to take out the contract. You might have to pay an annual deductible as well.
The contract provider will also take the model, year, make, and overall condition of your car into account as well. Service providers will usually charge more if they determine that your vehicle is likely to break down or need repairs. The cost will also depend on the term length of the contract and the services that are included.

What is the difference between a service contract and a warranty?

Warranties and service contracts both help cover the cost of repairs for a car, but they are not the same thing. The differences between warranties and service contracts are subtle but important to understand.


Warranties are offered through a dealership and manufacturer and are included in the purchase price of a car. They protect against breakdowns or defects for a set amount of time or miles. Most new vehicles come with powertrain warranty coverage and might include limited bumper-to-bumper warranty plans as well.

Service contracts

Most service contracts will only come into effect once a car’s warranty coverage has expired. Service contracts are optional, and you will have to purchase them to get coverage. A service contract may not come from the same provider as your original warranty. Likewise, the details of the coverage may differ as well.

Are vehicle service contracts worth it?

It depends. Here are some factors to think about when considering whether a vehicle service contract is worthwhile.

The cost

There is no way to predict with total accuracy what repairs you will need during the contract term. However, if a vehicle service contract costs more than what you would plan on spending on repairs during that time frame - it probably won’t be worth it.

Term length

Longer service contracts are generally better, unless you don’t know how long you will keep the car. If you think there is a chance you will switch vehicles during the contract, it might not be worth it. Be sure to ask if you will be able to transfer the service contract to the new car.

The claims process

Service contracts will often limit their coverage to specific repair shops. Make sure that you understand the claims process and that the garages listed are convenient for you.

The services included

A vehicle service contract will be useless unless the repairs you need are covered while the contract is in effect.
A valuable contract will include the components of your car that are likely to break down over time. It might also be worthwhile to have coverage on powertrain components such as the engine and transmission, as they can be costly to repair.
Service contracts might also include services or coverage that you already have through other providers. For instance, you might already have rental reimbursement coverage through your existing insurance policy. If you don’t, consider if you could get this type of coverage for less elsewhere.
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How to find the best insurance rates

A vehicle service contract is not a replacement for car insurance. Even if you have a vehicle service contract, you are still legally required to carry a minimum amount of insurance coverage on your car.
Before purchasing a vehicle service contract, you might want to consider investing in a good insurance policy instead. Vehicle service contracts can help cover the cost of breakdowns and repairs, but they won’t cover any damage resulting from an accident or external event like a storm or vandalism.
For incidents like these, you will need comprehensive insurance or collision insurance.
If you cause an accident, your vehicle service contract won’t cover the costs for the other party - but basic liability insurance will.
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Frequently asked questions

Are vehicle service contracts the same as warranties?

No, but they are similar. Unlike warranties, vehicle service contracts aren’t included in the price of a car, and they usually come into effect only once the warranty expires.

Do I still need insurance?

Yes. Vehicle service contracts do not replace your car insurance. Even if you have a vehicle service contract, you will still have to purchase at least the minimum insurance required by your state.
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