Most people who look at a service contract are really asking a different question: do I want to pay a set amount in advance against the chance of a repair, or do I want to pay for repairs only when they happen? That choice sits underneath every offer. The contract is the tool that carries out whichever choice you make, so reading the paper is only useful once you know which choice you are testing.
Describe the unit you are protecting. Write down what it is, how old it is, how hard it is used, and which parts are the expensive ones to replace on that model. Those facts belong to you, not to the seller. A contract that suits a lightly used unit may not suit a heavily used one, and only you can say which applies.
Ask what the contract would actually pay for. Read the list of covered parts and the list of excluded parts side by side. Then ask which repairs you would have to pay for yourself under the contract, and which ones you would have paid for anyway. If the contract mainly covers repairs you would never have made, you have learned something important about the offer.
Ask what happens to the money you keep. If you do not buy the contract, the amount you would have paid has to go somewhere: a savings account, a repair fund, or ordinary spending. A reserve only works if the money is set aside and left alone until it is needed. Be honest with yourself about whether that will happen.
Check the exit before you commit. Find the cancellation and transfer terms in the paper. Ask how a refund is calculated, and whether one is due at all. Your circumstances can change, and a contract you cannot leave cleanly is a different decision from one you can leave.
Check the regulator before you rely on the seller. Find out which state office oversees service contracts where you live, and whether that office publishes a roster of sellers. The state pages on this site name the regulator, cite the statute or program, and say whether a roster is published and what its as-of date is. This edition has not read every state, and each state page says which states it has not read, so check that note for your own state.
Write the decision down. On one page, record what you are protecting against, what you will do if a repair costs more than you can absorb, and what would make you cancel. A short written plan is easier to hold against a sales conversation than a memory of one.
This article describes how these contracts generally work. It is not legal advice. Read the actual contract, and ask the seller or the state office that oversees these contracts about any point the paper leaves open.