The reserve account is held at an FDIC insured banking institution as a depository account. Some of the reserves are held as CD's or Treasury Bonds. This helps us build additional funds in order to pay your claims. In addition to this, we pay for reinsurance on every contract sold. What this does for you is to ensure if the reserve account should ever be exhausted, the reinsurance company steps in to pay for your additional claims.
Dealerships offer two types of programs.
One type is very much like the one above. They offer a third party or factory plan and must mark up the costs in order to make a profit. That is why they must charge a much higher price than AutoWorld Warranty. These plans are generally safe investments and have been a very good profit center for many dealerships since that was the only place you could buy an extended warranty until the Internet. To compete in the future, these plans are going to provide less coverage and have more exclusions than ever.