Extended warranty vs Insurance

You may be wondering what the difference between Extended warranty vs Insurance when buying cover for your electronic consumer goods such as laptop, TV or washing machine?

Both are designed to provided a level of cover which gives you a piece of mind should something happen to the product you have bought or own.

Extended warranties

The two types of extended warranty are:

  • Insured extended warranties: This is where the consumer is directly insured by the extended warranty provider against the cost of repair or replacement.
  • Service-backed extended warranties: This is where the consumer is provided with a repair or replacement service, with out the extended warranty claiming to be an insurance product

From a consumer perspective the products appear to be the same. The difference is in the level of financial protection should the extended warranty provider ever go out of business. The insured extended warranties are covered by the Financial Services Compensation Scheme and therefore offer greater consumer protection. Service backed extended warranties provider often have a ring fenced fund within their business to meet the liabilities of providing an extended warranty product.

 Insurance

According to Wikipedia insurance is:

Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment.

In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the insured, known as the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as the premium, the insurer promises to pay for loss caused by perils covered under the policy language.

Extended warranty vs Insurance

In terms of covering extended warranty vs insurance for consumer electronic goods such as TVs, Laptops, Washing Machines etc there a few aspects to consider. You need to understand what the cover is protecting you against. Different policies cover you for different eventualities.

Mechanical breakdown

This would be if the product stops working or performing properly due to some kind of manufacturing fault or a component not being able to perform to meet the requirements of the consumer. An example could be that a button on a TV stops working, the hinge on a laptop breaks or a washing machine stops spinning.

Theft or Loss

This is often specified for portable products such as mobile phones, cameras and laptops. It covers you should the product be taken by somebody without your consent or if you misplace the product.

Accidental Damage

Accidental damage would cover things which may happen to the product which have caused damage to the product which prevent it being used properly. The cause of the damage would be unintentional and usually caused by the owner of the product. This would cover you for if you dropped a portable product such as a laptop or if you were to crack the screen of a TV by accidentally throwing a games console controller through the screen.

Summary

Most cover products for consumer electronics will either use the word insurance or not. The use of this word indicates if the product is  sold by a company which is selling products protected by the  Financial Services Compensation Scheme. If the company you are dealing with goes out of business and you need to make a claim then an insurance product will be covered where as a non insurance service based contract is not protected. Ultimately this means that an extended warranty product could become worthless if the provider of the extended warranty goes out of business. Some extended warranty providers such as SquareTrade do offer a cover which is protected by the  Financial Services Compensation Scheme.

To summarise the biggest difference between extended warranty vs insurance is protection if the company goes out of business and the different aspects the cover provides. In reality this is a risk but quite a small risk as most non insurance based extended warranty suppliers have a fund which is in place to cover the liabilities of the cover they offer.

Insurance products focus on theft, loss and accidental damage with some covering mechanical breakdown. Extended warranty products focus on mechanical breakdown with some covering for accidental damage but rarely covering loss or theft.

As long as you understand what each policy covers and how suitable this is for your needs both protects could be worth considering.

From our research for the laptop comparison article, we found that often there is more competition in the insurance market than extended warranty which seemed to drive the price of the cover down to a more competitive price.

 

Further information

If you are considering buying an extended warranty or insurance cover for you product please check out our