Car Buying Tips Guide 1

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can be a dealership, dealership group, or even a third party. It’s sold like alegitimate insurance obligor service contract, but it is not regulated by any


insurance commission or board. For all the bad press that the insuranceindustry receives, at least it does have some measure of state and federal (^)
regulation. There is much less oversight of risk retention groups, thoughthey need to meet certain state laws to be sold.
Basically, what happens when an RRG is set it up is that they begin to sellservice contracts to unsuspecting consumers, either at dealerships, online (^)
or through telephone agents. The RRG owner(s) take money off the top forcommissions and administrative fees—which can exceed 30 percent of the (^)
total contract price—then, whatever is left over is put into the savingsaccount. When a vehicle covered by the policy has a breakdown, a claim is (^)
made, and money is withdrawn from the account to pay for the repair.
schemes.TIP: Many—not all—RRGs end up operating like Ponzi^
Historically, the money that is put into the account of most RRGs has notbeen enough to cover all the claims until the last customer contract has
expired, so they run out of funds. Without insurance behind them, there isnot any recourse for the customers when the money run out. When that
happens, the end result is almost always the bankruptcy of the riskretention group, leaving thousands of consumers with literally worthless (^)
contracts. Sometimes these poor folk can regain some portion of what theyspent in a class action lawsuit, but that is rare.

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