Administrator -The administrator is the obligor, or the company agreeing to pay the claims, on a vehicle service contract. 

 

Broker -A broker, in respect to our industry, is a company who offers, sells, and often markets Vehicle Service Contracts directly to consumers.

 

Claim -A claim is filed when coverage is used. Claims can be approved or denied by the administrator or obligor. Once the claim is pre-approved by the administrator, the necessary repair work is performed and the customer usually pays a small deductible. Claims can also include the cost of using included benefits, such as roadside assistance, or rental vehicles.

 

Factory Warranty -A factory warranty is coverage that vehicle manufacturers include with vehicles when they are first manufactured and sold as new cars. Many car companies will typically include a 3-year/36,000 mile "bumper-to-bumper," as well as a 5-year/100,000 mile "Powertrain" factory warranty.

 

Limit of Liability -A limit of liability is the maximum amount of money that a contract agrees to pay out in claims over the length of the contract. Some contracts cover vehicles up to the actual cash value of the vehicle at time of purchase or repair. Some contracts cover vehicles up to a lump sum like $10-15,000 or the actual cash value of the vehicle, whichever is greater or less. Some contracts limit liability per component, such as $2,000 on the engine and $1,000 on the transmission, etc. 

 

Maintenance Requirements -Maintenance requirements are conditions outlined in the contract that the contract holder must adhere to in order for their contract to be honored in the event of a claim. These usually require the customer to keep up with their scheduled routine maintenance as recommended by the vehicle manufacturer.  

 

Powertrain -"Powertrain" typically refers only to a vehicle's engine and transmission. Some types of powertrain include more, such as the water pump, drive axles, 4X4, etc. 

 

Pro-rated/Pro-rata Refund - A pro-rated, or pro-rata, refund is a partial refund that takes into account what fraction of a guaranteed amount of use was successful and what part you did not receive. Example: You buy a radio for $30 and it has a 1-year guarantee. It stops working after 8 months. Since you didn't get the last 1/3 of guaranteed use, a pro-rated refund would be $10.

 

Risk Retention Group -A risk retention group (RRG) is an alternative risk transfer entity created by the federal Liability Risk Retention Act (LRRA). RRGs must form as liability insurance companies under the laws of at least one state—its charter state or domicile. In the automotive service contract industry, a RRG is the common form of administrator behind a "month-to-month" program. This is often bad for the consumer since this type of entity is not required to follow the same government standards as insurance companies, which are designed to protect consumers from shady business practices.

 

Technical Service Bulletin -When consumers report common problems with a specific component on a specific vehicle, the manufacturer must acknowledge this as a defect and issue a technical service bulletin, which mechanics use to diagnose and fix the problem. The manufacturer engineers sometimes find more than one reason for why these parts fail to or don't operate the way they were designed to, which is why sometimes there are multiple bulletins issued for the same part. Technical Service Bulletins do not extend the factory warranty, and manufacturers will only pay for these repairs if there is a recall. The only time Service Bulletins can become recalls is if they affect people's safety, such as airbag recalls.

 

Vehicle Service Contract (VSC) -A vehicle service contract, or VSC, is a contract between the contract's administrator and the customer in which the administrator agrees to pay claims for specific components outlined in the contract. There is always a total Limit of Liability for each contract as set by the respective administrator. The customer pays for their coverage, often using a no-fee payment plan offered through the broker via a finance company. 

 

Warranty -A warranty, or auto warranty, is coverage that vehicle manufacturers include with vehicles when they are first manufactured and sold as new cars. Many car companies will typically include a 3-year/36,000 mile bumper-to-bumper, as well as a 5-year/100,000 mile Powertrain factory warranty. As vehicles become more sophisticated with new, high-tech components, factory warranties can be limited to exclude things like GPS navigation systems, and similar complex parts which a third-party service contract may be able to cover. 

 

 

Definitions