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What does an extended warranty do?
Everyone relies on appliances and machinery, from simple products like toasters
and irons to complex equipment like cars and computers. Sometimes a breakdown
is merely a nuisance, but it can cause inconvenience and may result in considerable
expense.
When you buy something new the law requires it to be up to its job. Usually, the
manufacturer or retailer will guarantee it for a period of time, generally a year.
An extended warranty is a type of service contract or guarantee that covers you for
repair costs after the manufacturer´s or retailer’s guarantee has expired. These
policies are also sometimes called mechanical breakdown insurance.
Household appliance warranty cover
Policies are available to cover repair costs following breakdown for most
household appliances. Most policies cover the cost of parts and labour. There is
usually a maximum amount payable during the term of the policy and some
may have a limit on each claim.
If the appliance cannot be repaired, some policies will replace the appliance
with a new one of similar specification, or pay a cash equivalent if a similar
model is no longer available. These are often called "new for old" policies.
Other policies will make good up to the current value of the appliance after
depreciation. If any appliance is replaced the policy will usually end.
What should I think about when buying an extended warranty for a
household appliance?
Additional benefits
Some policies provide additional benefits, such as accidental damage
or frozen food spoilage. This cover may be available on your home
contents insurance.
Common Exclusions
Policies usually exclude misuse and non-domestic use and cosmetic items
such as damaged paintwork or trims. Consequential losses, such as water
or fire damage, are not covered as your home insurance will probably meet
these claims.
Where can I buy an extended warranty for a household appliance?
When you buy new appliance, the retailer will give you information about policies
they sell and may also be able to provide details of policies offered by the
manufacturer. Details may also be enclosed with the appliance or sent to
you when you return the guarantee registration card.
Cover is also available directly from specialist insurers, insurance brokers,
banks, your credit card provider or other financial institutions that lend you
money to buy the appliance.
You may want to obtain breakdown insurance for appliances you already own
but which are not currently insured. Insurance companies can offer this cover,
subject to the age and condition of the appliance. With this type of cover
there is usually a ‘no-claim’ period immediately following the start of the cover
during which claims for breakdown will not be met.
When extended warranty insurance on certain appliances expires, your existing
cover supplier may write to you with an offer of renewal. They may also invite
you to extend cover to other appliances you own.
Motor warranty cover
A wide range of motor warranties are available to protect you against the costs
of sudden and unforeseen failure of specified components of the motor vehicle.
A motor warranty protects you against unexpected failure. They are not always
maintenance contracts and do not cover breakdowns that arise through
normal wear and tear. The policy terms and conditions should always make
these points clear.
The components covered by a warranty vary according to the age and mileage
of the vehicle. A range of policies is available from wide protection on new or
very young, (low mileage) used vehicles to more limited cover for older or
higher mileage vehicles.
You may be offered a choice of the level of cover for the vehicle you are buying.
Generally, a policy covering a wide range of components will be more expensive
than more restricted cover. Cover applies strictly to the failure of specified
components only; if the component is not listed for cover in the policy, the
repair is not covered.
Policies usually pay for parts and labour charges incurred in the repair or
replacement of an insured component. Policies often have a maximum
amount payable for any claim; you should check these limits in view of
the cost of breakdown for major components.
Some policies have a betterment clause that requires you to pay something
if your vehicle is improved following repair. They may also have a maximum
amount payable during the term of the policy. Some components may have
specific claim limits applied as well.
For new cars, cover is usually for 12 or 24 months after the manufacturer´s
guarantee expires, but longer periods of cover are also available.
For used cars, periods of cover offered will vary from 3 to 36 months from
date of purchase.
Is there anything I should think about when buying a motor warranty?
Additional Benefits
Mechanical breakdown policies may include additional benefits, such as
towing-in charges, tyre care, MOT insurance, car hire costs or overnight
accommodation.
These benefits only apply in conjunction with a valid mechanical breakdown
claim and are often subject to separate conditions and limits.
Vehicle servicing
Most motor warranties require the vehicle to be serviced by an appropriate
dealer, at minimum intervals as specified in the policy. This is a crucial
condition of the policy and the policyholder is responsible for making sure
that correct servicing is carried out at the intervals specified. Failure to do
so could result in a claim being refused.
Common exclusions
Only components specifically listed in the policy will be covered. If a breakdown
occurs due to a component not specified in the policy, the repair will not be
covered.
Where can I buy a motor warranty?
When you buy a new car through a dealer, you will get details of the policies
they offer. Cover may also be available from the manufacturer and the dealer
may be able to provide details of this too.
For a used vehicle, the cover available will depend on the age and mileage.
Your dealer will be able to provide details of the policies they offer.
Cover is also available from some insurance companies, brokers,
motoring organisations, banks or other financial institutions (especially
if you are borrowing money to buy the car).
Some mechanical breakdown insurances have an option to renew the
cover for a further 12 months when your policy runs out.
Other useful information
How do I make claim on my extended warranty?
Refer to the claims procedures in the policy terms and conditions before
you arrange repairs. These will give you full details of how to claim and what to do.
Some policies pay the repairer direct. Others will ask you to pay the repairer
and send the invoice to the insurer/administrator for reimbursement.
What other types of extended warranties are available?
Breakdown or warranty policies are available for a wide range of other items.
Office machinery, yachts, earth-moving equipment, fitted kitchens and
household furniture are all examples where policies are available.
The basic principles of cover are similar to those for household appliances
and cars, but the policies have different specific conditions.
Understand your cover
All insurance policies are important documents. Read your policy carefully
as soon as you receive it. If you do not understand, you should ask the person
who sold you the policy, or the insurer, to explain. All policies have a cooling
off period, whereby you can cancel the policy with a full refund, subject to no
claims being made, if you wish to reconsider your decision.
Is it insurance?
Some warranties are not insurance contracts. These usually have names
such as service contracts or guarantees. With service contracts, your payments
are put into a pool that is used to pay claims. In many cases this pool is protected,
so that if the retailer/insurer goes bust your claims would still be paid. But that is
not always the case. You should receive information at the point of sale whether
you would be covered in the case of insolvency.
Recent developments
In December 2003, the Competition Commission published the report of its
enquiry into the sale of extended warranties for household appliances. The DTI
implemented the Competition Commission´s recommendations from April 2005.
Key DTI changes are:
- The price of the Electrical Warranty has to be prominently displayed on or
- near the electrical goods it applies to. This requirement is applicable to
- in-store, catalogue or on-line retail sales.
- The customer has a right of cancellation after purchase of their electrical
- goods of up to 45 days for a full refund and pro-rata thereafter.
- Customers have to be reminded by the retailer about their right to
- cancellation. This reminder must be provided at least 20 days before
- the cancellation period ends.
- A written quotation setting out the purchase terms of the EW must be
- valid for up to 30 days after purchase of the goods.
- Relevant policy information must be provided at point of sale.
Further to the report, the Government decided that extended warranties sold by
electrical and furniture retailers will not come under the scope of the FSA
regulation of general insurance. Motor retailers are now regulated.
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