Wonky Warranties

30/06/17 James Walker, founder of Resolver, says:

Warranties are one of the biggest cash cows for the insurance services industry. Why? Well loads of us have at least one, most of us instantly forget about them (or lose the documents) and the proportion of people who actually claim on them is so low that they generate huge profits for insurance brokers and underwriters.

But are they any good? In simple terms, warranties have a bad reputation – and many of the ones I’ve seen deserve it. Often overpriced, offering services that you’re covered for already through manufacturer’s guarantees or other insurance policies and containing tonnes of baffling or plain unfair terms and conditions that can mean making a claim is a nightmare. Of course, not all warranties are bad, but some aren’t worth the paper they’re written on. Here’s a quick guide.

Some warranties aren’t worth the paper they’re written on

Guarantees, warranties and service contracts, oh my!

So what is a warranty? Well, there are three main kinds of agreement you can get when you buy goods, to give you a bit of reassurance if they pack in or get damaged.

• A warranty is a regulated insurance contract you take out on an item you buy – anything from a sofa to car – is insured and gets repaired or replaced if it breaks or is damaged. They’re often called ‘extended warranties’ too. The insurance underwriter, not the trader or manufacturer, decides what to do with your claim.
• A guarantee is usually included for free when you buy something and is a promise from the trader or manufacturer that they will repair or replace the item, or give you a refund if it becomes faulty within a set period of time. Often called ‘manufacturer’s guarantees.
• A service contract is an agreement between you and the trader or manufacturer that looks like an insurance contract, but isn’t. They usually work in the same way though, but your rights are different if there’s a dispute.

Sounds confusing? That’s because it is! It’s not always easy to tell what agreement you have without looking at the small print on the bottom of the agreement, so make sure you ask when you make the purchase. Here’s why it matters:

A tablet tragedy

I was speaking to a Resolver user the other day who was telling me about how her kids had been arguing over a tablet computer. After a stern warning, they stopped – and started to yank it off each other instead. Only for the tablet to slip out of their hands, fly through the air (in slow motion, is how she described it) and land in the full washing up bowl. Those little bubbles of doom appeared. RIP tablet. And so she went to make a claim.

The tablet came with a manufacturer’s guarantee, but it only lasted for one year and had expired, so she couldn’t go to the retailer or tablet maker. She did have a warranty though and put in a claim. The underwriter turned down the claim because they said she had been ‘negligent’ (some insurer’s love that word – I hate it). Then turned it down again because water damage wasn’t covered.

I had a look at the warranty and it was pretty rubbish. But their terms didn’t make it clear what ‘negligent’ was defined as, which meant they couldn’t rely on it. And the wording around water damage was so broad and ambiguous that I thought if the case went to the ombudsman or the courts, they’d have lost. They backed down and peace was restored to the household with a new tablet, and stern warnings to squabbling children.

Your rights, if things go wrong

You have lots of statutory rights when things go wrong with goods or services you purchase. We cover these in detail on our website (and MoneySavingExpert break down the legal stuff here) Here’s how it works.

• 30 days: You can reject something you’ve bought outright within 30 days of purchasing and get a full refund. That doesn’t mean you can wear a new frock out clubbing and try to take it back because it’s got beer on it though.
• 6 months: if the goods are faulty within a six-month period you can still return them, but it’s up to the seller (not the manufacturer) to prove that they weren’t faulty when you bought them.

So far, so good. And all without the need to turn to the guarantee, insurance or service contract. Of course, this being the law, expect exceptions to the rule and complications (the rules for digital content and things bought online are a little different).

• Up to three years. Most guarantees will cover you for a period of around 1-3 years. These guarantees relate almost exclusively to faults or damage though and won’t cover you for theft, accidental damage, pets that like to destroy sofas etc.

So a guarantee is a useful thing to have, if you accept that it’s not going to cover everything. If the goods come with a guarantee, you might want to add them to your home insurance for additional cover, or wait till the guarantee is due to run out and add them later to save a bit of cash (the tablet scenario I described wouldn’t have worked with just a guarantee though).

• With a warranty. . If you make a claim on a warranty, the underwriter of the insurance will assess what’s happened and if it’s covered, they’ll pay out to repair or replace the item. Bear in mind that you’ll only get what you paid for, so if your warranty covers your iPhone 4 (other brand phones are available) then you won’t get a lovely new iPhone 7 – you only get the cash to replace what is damaged or lost.

Now many warranties are a bit rubbish, but that doesn’t mean you’ve lost out. Just because the contract might be filled with vague terms and bonkers exclusions doesn’t mean it’s fair. And if it’s not fair, you can take things further.

Going further

Resolver can help you make your complaint to the shop, manufacturer and insurance company, so use our simple complaint tool to get started. But what if you’re not happy with the businesses response?

There are two ombudsmen schemes that you can take your complaint to (and we’ll help you do it – it’s dead easy). Both schemes are free but they do have different powers.

The retailer, manufacturer or insurer has up to a maximum of eight weeks to resolve your complaint. If it gives you a decision and you’re not happy – or if it doesn’t respond in time – you can take things further.

• If you’re unhappy with a retailer or manufacturer, the Retail Ombudsman can look at your complaint. It’s relatively new, but many businesses have signed up to it, so check their website to see if yours has. If not, I’m afraid you’d have to take the business to the small claims court.
• If you’re unhappy with an insurer, the Financial Ombudsman can look at your complaint. It’s the ombudsman with the most powers – and its decision is binding on the insurer (but not you).

One last thing…

If you’re making a significant purchase, it really does make sense to think about getting a guarantee or insurance if you can’t afford to lose or replace it. But don’t feel pressured into taking out a contract at the till or on a whim. Take some time to think about it and look at all the options. And if something goes wrong, we’re here to help.

Happy shopping!

James