In the consumer auto industry, this is commonly referred to as ESPs. Extended Service Plans are available in various structures and from various sources. Not to be confused with manufacturers' Limited Warranties that typically provides coverage for defects in workmanship and materials, ESPs typically pick up where the manufacturers Limited Warranty ends and provide coverage for product failure outside of normal wear-and-tear items (i.e. brakes, tires, belts, and hoses). ESPs come in two forms, either named inclusions, specifying what is covered; or named exclusions, specifying what is not covered. ESPs typically contain other value-added features such as 24-hour road service, rental car reimbursement, and large repair networks. The most common ESP transaction and offering is on used cars and light trucks by the dealership selling the vehicle; however it is not uncommon to have ESPs offered on new vehicle transactions, as well as a value-added offer through other sources such as credit unions, auto clubs, and consumer direct. ESPs are typically administered through third-party administrators and backed by third-party insurers. ESPs are priced very similarly to other insurance products by utilizing vehicle-specific, repair-history actuarial tables. The use of third-party administrators and insurers allows for the offering enterprise to not have to carry any future repair liability on their balance sheet. ESP products are a welcome addition by most lenders and can typically be included into a vehicle financing.

Contributed By:

Brian Sexton
Independent Retail Consultant
Brian Sexton