What are the Basic Elements of a Service Contract Program

The Seller
    This represents the entity making the solicitation and sale of a Service Contract. This includes Retailers, Dealers, and Marketers.

The Obligor (aka Provider)
    The Obligor (or Provider) is the legal entity that is issuing the Service Contract.

    Many states require some form of registration (licensing), form filing for terms and conditions, financial guarantees, officer and/or director biographical reviews, and other requirements. This is not a one-time event; ongoing reporting and license renewals exist in many states.

    This is on a state-by-state basis and varies on a product level. Examples include vehicle service contracts, ancillary auto products, home warranties, consumer appliances, and electronics products.

The Administrator
    The Administrator is the entity providing customer entitlement, claim adjudication, and payment of claims.

    Some states require registration of the administrator and some form of financial guarantee.

The Financial Guarantee
    Most states have requirements for how an Obligor (Provider) must provide for the financial guarantee of a Service Contract.

    Financial guarantees are intended to protect the Contract Holder from the financial failure of the Obligor (Provider).

    Financial guarantees may include cash reserves, bonds, a parental guarantee from an entity with substantial and defined net worth, or a service contract reimbursement insurance policy (contractual liability insurance policy).

The Service Entity
    The Service Entity is a company the Administrator utilizes to perform repair or replacement services in fulfilling the obligations of the Obligor in the Service Contract.

    Some states require registration of the administrator and some form of financial guarantee.

The Contract Holder
    The actual Contract Holder (or Consumer) that the Service Contract is issued to and who is the owner of the covered product.

Process Flow for Service Contract Elements

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