The California Department of Insurance has an online Guide to Automobile Repair Agreements, which includes information about the state's laws concerning service contracts, product warranties, and mechanical breakdown insurance.

As discussed earlier, service contract company service contracts are not insurance policies. However, because so many service contract companies went out of business without paying claims between 1970 and 1995, California law requires that a California licensed insurance company guarantee service contract company service contracts. This guarantee means that if a service contract company fails to pay any claim, either because the service contract company is out of business or because the service contract company does not think the claim is covered by the contract, you can seek to have the insurance company pay the claim. The law requires that the name and address of the insurance company be printed on the contract. Look for the name and address on the contract, and do not buy any service contract that does not have the insurance company's name and address printed on it.

Service contract companies must be insured by an insurance company that is licensed by the California Department of Insurance (CDI). However, there is one exception to this rule: a service contract company may be insured by a special kind of insurance company called a "risk retention group." This type of insurance company should always have the words "risk retention group" in its name. Because many laws that apply to licensed insurance companies and protect consumers do not apply to risk retention groups, some people recommend that you buy a service contract only from a service contract company that is insured by an insurance company licensed by the CDI.