How is the price I pay allocated to the different players?
The total price of a warranty to the consumer is comprised of several components. Consider a simple formula: P = I + A + T + M; where
P = total price,
I = Insurer cost,
A = Agent’s commissions,
T = Third Party Administrative costs, and
M = Dealer markup.

So, let’s see how this works. First, the insurer determines the expected loss costs and adds any internal company expenses. Second, the third party administrator (TPA) receives this “insurer cost” and adds in his administrative costs for activities such as underwriting, claims, systems, etc. That TPA may then have an independent agency sales force in place to sell the Service Contract Reimbursement Policy (SCRIP) to the dealer, this agent's commissions must also be included. All of the above costs make up what is called the dealer's cost, to which the dealer then adds whatever markup he can to arrive at the total price. Since this markup is not regulated in any state but Florida, total price for the same Vehicle Service Contract (VSC) can vary from consumer to consumer, depending on the negotiating skills of the buyer and seller.

But what is really being “insured” on a auto service contract?
The insurer’s costs (above) are made up of their expected loss costs and the their expenses. The expected loss costs are a function of many variables, including:
a. Manufacturer (Asian, US, European)
b. Coverage option
c. Make (Ford, Toyota, etc) and model (Explorer, Corolla, etc)
d. Term limit option
e. Mileage limit option
f. Deductible option
g. Underlying warranty (manufacturer's warranty)
h. Special factors ( four-wheel drive, commercial use, advanced technology for example).

So is the price of the warranty all I pay?
While the price of your warranty is a large part of the total cost, it is one of several cash outlays you will have to make over the life of the warranty. Other oulays include:

• Deductible payments made each time your car is serviced or repaired. Under some service contracts, you pay one charge per visit for repairs—no matter how many. Other contracts require a deductible for each unrelated repair.
• Transfer or cancellation fees if you sell your car or end the contract. a)    Overage amounts paid when costs over run service contract limits. Common limits apply to specific repairs (e.g., transmission re-build not to exceed $4,000) or benefits to be received under the contract (e.g., amounts paid for towing or related rental car expenses).
• Finance charges associated with paying the cost of the warranty over time. While many warranty providers have low (even 0%) finance plans, you should be aware of any interest, inception or other costs should you decide to finance your warranty. This is particularly true in the case of extended warranty coverage purchased through the dealership coincident with the purchase of the car.