Though they are commonly referred to as extended warranties, the correct term is extended service contract. They do not lengthen the manufacturer’s warranty, and they may not cover the same parts or have the same benefits and restrictions. They are more of an insurance policy that promises to repair or replace certain parts if they break, and they always come with specific exclusions.

A warranty is included in the cost of the vehicle whereas you pay extra for an extended service contract.

The main reason people will purchase extended service contracts is to protect themselves from major bills after the standard manufacturer’s warranty has ended.

While a service contract might seem like a good idea, there are a few reasons why not to buy when purchasing a new or used vehicle—especially if it is still covered by the manufacturer’s warranty.

A service contract will not pay for repairs that are covered by the manufacture’s warranty. Therefore, if you are already covered by the manufacturer’s warranty, you probably won’t use the service contract for that period.

Vehicles also tend to last more than 10 years without requiring major repairs, so the situation vehicle owners fear, may never happen.

Additionally, all service contracts have exclusions, the repairs you need might not be covered such as engine damage from overheating. Lastly, contracts may reject claims if owner cannot show proof of regular maintenance.