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Are Service Contracts for Security Systems a Good Deal?
Service contracts are available for most types of electronic security systems, including closed-circuit television systems, access control systems, and alarm monitoring systems.
Service contracts are usually offered by the security contractor (systems integrator) that originally sold and installed the security system, although some contractors will also offer service contracts on systems that were provided by other companies.
Service contracts generally cover the costs of service and repair for a fixed monthly or annual fee.
Are service contracts a good deal for the consumer of a security system?
Before making this decision, a number of questions about the specific service contract being offered must be asked:
It is the opinion of Silva Consultants that, in most cases, service contracts are not a good deal for the average consumer of security systems.
Our experience has shown that, over a five year period, most consumers will pay less to have service performed on a "time and material" basis than they would if they paid for a service contract over this same period. Furthermore, the exclusions found in most service contracts mean that the even the consumer with a service contract will have to pay out-of-pocket for many types of repairs.
In general, most security system equipment is reliable and requires little routine maintenance.
We estimate a ten-year life span for the average electronic security system. Most system failures will occur during the first year. These failures are due primarily to "infant mortality" of system components and/or improper installation. Repairs during the first year should be covered under the standard warranty offered by the security contractor.
If quality equipment was used, and it was properly installed, repairs during the second, third, and fourth year of system life should be minimal. Repairs during these years are often those caused by vandalism or misuse of the system; things typically not covered by a service contract.
Somewhere during the fifth to seventh year of system life, the system may need one or more major repairs. Although these repairs may be costly, you usually will be ahead financially if you pay for these repairs when needed rather than to pay for a service contract for the entire life of the system.
Another factor to be considered is obsolescence. Security systems, like most other types of electronic systems, become obsolete quickly. While most security systems will last ten years or more, they are often considered obsolete in five years or less. Most consumers will probably want to upgrade or replace their systems before major repair costs ever become a factor.
One advantage that a service contract offers is a predictable annual expense for system maintenance.
To gain this advantage without a service contract, we recommend that the consumer create a "security system maintenance account". Funds for system maintenance should be deposited in this account on an annual basis. Repairs and upgrades to the system are paid for out of this account.
How much money should be set-aside each year? One method is to set-aside the annual amount that the service contract would have cost if you had purchased it from the security contractor.
Another method is to use a annual percentage of the installed system cost. The "installed system cost" is the total cost (materials and labor) that you paid to have the security system installed. We usually recommend an annual maintenance budget of somewhere between 5% and 10% of the installed system cost.
Our experience has been that clients who "self-insure" by setting up a maintenance account are usually far better off than those who paid for an annual maintenance contract. Often, there is enough surplus in the maintenance account to pay for system upgrades or to apply towards the replacement of the system when the time comes.
Here are a few additional things to consider:
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Did You Know?
Silva Consultants is an independent security consulting firm and does not sell security equipment or products
Silva Consultants can assist you in the design and planning of an effective security program and in the selection of security products and services
Please contact us for further assistance