American Auto Shield reviews the differences between insurance and service contracts

It would be fair to say that there is certainly enough automobile jargon littered around the industry. While the car dealerships may real such terminology off the tip of their tongue, the same doesn’t tend to be said for the Average Joe who is often left blank-faced when met with such lingo.

One of the big areas of confusion surrounds insurance and service contracts. Sure, there are similarities between these two areas, but they are by no means the same. This is something that companies involved in the field have to deal with on a regular basis and to set the record straight, we have pieced together this guide.

While you could take a look at American Auto Shield reviews for more of an insight, here is a more succinct breakdown of what differences exist.

Insurance only covers negligent behavior

Let’s get the biggest difference out there first. As we all know, insurance is designed in those cases where a traffic incident occurs, and the result is damage to your car.

This doesn’t occur with service contracts. If you are involved in a collision, the service contract isn’t going to save you.

On the flip side, it is going to be very beneficial when your car breaks down suddenly. If you wake up one morning and your vehicle doesn’t start, your insurance isn’t going to help in the slightest. This is when a service contract steps in, and can provide assistance for operational failures. It should be highlighted that these failures must be classed as “operational”, and not occur due to the fault of you or anyone else who is using the vehicle.

Service contracts are not warranties

This is where a little confusion creeps into the situation. Contrary to what the name might suggest, service contracts are by no means warranties. Some people might class them as extended warranties, but let’s first delve into a few clarifications.

A warranty is included within the initial price of the vehicle. This is something that doesn’t occur with a service contract. Instead, it tends to be an additional sum of money, which immediately means that they aren’t usually as popular.

Nevertheless, if one was to analyze the details, it would become clear that they are effectively an extended warranty – despite the difference in the name.

The premium isn’t directly tied to your history as a driver

Another key difference between the two types of cover surrounds the premium. As we all know, every time we make a claim on our insurance, it’s something that can be reflected in the annual premium that we pay.

Well, this doesn’t tend to occur with the typical service contract. Instead, this is completely linked to the state of your vehicle, and not the type of driver that you are. This is due to the fact that it’s not going to affect any claim arising from the fault of the driver, or anyone else for that matter.