What Is Warranty Insurance?

In insurance, a warranty is an ambiguous term that can mean two things depending on the context:

  1. Warranties made by an insured party to an insurer. Most insurance policies do require an insured party to warrant that he or she will follow the contract. For example, a health insurance plan would require the insured to warrant that he or she doesn’t suffer from a terminal disease. If the warranty is violated, the insurer has the right to refuse to cover claims.
  2. Warranties made by a manufacturer. A warranty made by a manufacturer protects the buyer from defects and malfunctions that may be revealed once he or she starts to use the item. For example, car warranties are usually issued for 3 years or 36,000 miles.

What Does Warranty Insurance Cover?

Warranties made by an insured party to an insurer can be affirmative or promissory.

  • Affirmative warranties are made regarding the facts when the contract is made. An untruthful affirmative warranty immediately renders a contract void.
  • Promissory warranties include future facts or the facts lasting throughout the term of the warranty. A violation of a promissory warranty may also result in canceling the policy, but not necessarily from the time the contract was made (for example, an insurer may decide to cancel the contract after being informed that the insured has decided to use the insured building for manufacturing poisonous or dangerous substances, which violates the warranty).

When it comes to warranties made by a manufacturer, though, the coverage depends on the warranty itself. Car warranties, for example, usually come in three packages – powertrain, inclusionary, and exclusionary – each of which covers different parts of the car. Most car warranties will cover losses caused by manufacturing defects, but will not cover the parts that were broken due to wear and tear (brake pads, tires, windscreen wipers, etc.).

How Much Is Warranty Insurance?

The cost of warranty insurance depends on the type of insurance. For example, the average basic home warranty would cost you about $500 a year, with extended coverage adding up to $500 to the figure.