Product Warranty Insurance Explained for Businesses

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Product warranty insurance is a type of protection that helps businesses cover the costs of repairing or replacing defective products.

It can be purchased as a separate policy or included as part of a larger insurance package. This type of insurance is usually required for businesses that manufacture or sell complex products.

The cost of product warranty insurance varies depending on factors such as the type of product, its price, and the level of coverage desired.

Businesses can expect to pay between 1-5% of the product's value in premiums.

On a similar theme: Business Insurance Products

What Is a Warranty?

A warranty is a promise made by a manufacturer or similar party regarding the condition of their product. This promise outlines the terms and situations in which repairs, refunds, or exchanges will be made if the product doesn't function as originally described or intended.

Warranties are promises offered by manufacturers and other parties on production conditions. This means that buyers can have some assurance that the goods and services they purchase are as advertised.

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Buyers must fulfill specific duties for the warranty to be honored. This might include registering the product, keeping records of maintenance, or following specific usage guidelines.

Warranties can be either expressed or implied. An expressed warranty is a written promise, while an implied warranty is an unwritten promise that is assumed to be part of the product's sale.

The Magnuson-Moss Warranty Act was created to protect consumers from fraud and misrepresentations. This act helps ensure that manufacturers and sellers live up to their promises.

Here's a quick breakdown of the key points about warranties:

  • Warranties offer promises on production conditions.
  • Buyers must fulfill specific duties for the warranty to be honored.
  • Warranties can be either expressed or implied.
  • The Magnuson-Moss Warranty Act protects consumers from fraud and misrepresentations.

Types of Warranties

There are two general types of warranties: expressed and implied. Expressed warranties are explicitly stated by the seller, while implied warranties are implied by law.

A warranty is a guarantee issued by a seller to a buyer that a product will meet certain specifications. Certain exceptions apply, and not every defect is covered. The terms and conditions of the warranty depend on the type of warranty covering the product.

There are two types of warranties: express and implied. Each has sub-types intended for different circumstances and products.

Know the Difference

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We often get calls from people wanting to buy warranty insurance, but they're actually looking for something else. Product Recall Insurance is for products that could cause harm, and it's triggered by the potential for bodily injury or property damage.

The main difference between Product Recall Insurance and Product Warranty Insurance is the trigger. Product Warranty Insurance is a promise to repair, replace, or refund a product that fails to meet a standard of performance.

Large retailers are often asking manufacturers to warranty their products in case they don't perform as expected. This can be a way for retailers to protect themselves if they need to return products to the manufacturer.

Most manufacturers are looking for a way to protect their profits when a warranty or indemnity agreement forces them to take back a product. However, it's worth noting that there are no insurance carriers willing to provide this type of insurance coverage.

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Here are some common types of warranties:

  • Extended warranties are available on high-value products like cars, electronics, and appliances.
  • Special warranty deeds transfer property ownership and assure the buyer that the title is free of encumbrances.

It's essential to understand the terms and conditions of a warranty, as certain exceptions apply and not every defect is covered.

Why Guarantee?

A guarantee is an expressed promise from a seller or manufacturer that a product will perform as expected.

It's a crucial aspect of doing business, as it builds trust with customers and sets clear expectations.

An express warranty, for instance, is a guarantee that the product will work as described. This can be written or verbal, and it's not just limited to the product itself, but also its packaging and advertising.

If the product doesn't meet these specifications, the seller is obligated to repair or replace it.

However, not all guarantees are created equal – some are just puffery, used to attract customers with exaggerated claims.

For example, a retailer claiming their mattress will give you the "best night's sleep ever" is not making a guarantee, but rather using puffery to promote the product.

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A Product Guarantee insurance policy, on the other hand, provides cover against the cost of replacing or reworking products that have failed to perform their intended function.

This type of policy is often used in conjunction with other types of insurance, such as Financial Loss and Product Recall Insurance.

It's designed to act as a 'safety net' for the quality management processes of the policyholder, guaranteeing the product's performance.

The only requirement is that the product must have failed to perform its intended function, and it doesn't need to have caused injury or damage.

Sub-Types

There are many different types of warranties, but let's focus on the sub-types.

An extended warranty is available on products of substantial value, such as cars, electronics, and appliances. Although sold by the retailer, the manufacturer is responsible for executing the extended warranty on behalf of the customer.

Special warranty deeds transfer property ownership from one person to another and assure the buyer that the title at the time of sale is free of encumbrances, liens, or claims. This deed transfers ownership to the grantee with an expressed warranty about the title.

For another approach, see: What Is Insurance Types

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Here are some common warranty subtypes:

  • Extended warranties: These are available on products of substantial value, such as cars, electronics, and appliances.
  • Special warranty deeds: These transfer property ownership from one person to another and assure the buyer that the title at the time of sale is free of encumbrances, liens, or claims.

Product Warranty Insurance

Product Warranty Insurance can be a lifesaver for businesses that experience product failures. A typical Product Guarantee Insurance policy covers claims made during the relevant policy period.

This type of policy is annually renewable, meaning you can renew it every year to continue protecting your business. It consists of three main components: product guarantee, financial loss, and product recall.

If your product fails to perform as intended, a product guarantee can help you repair or replace it, minimizing the impact on your brand name and profitability.

Product recall cover is also included, which can help you manage the costs associated with recalling a product. Financial loss cover provides additional protection against financial losses due to a product failure.

By having a Product Guarantee Insurance policy, you can provide a sense of security to your customers and protect your business from potential financial losses.

Claims and Liability

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A Public/Products Liability insurer typically won't cover a claim if the product itself hasn't directly caused the loss or damage. This is because the product was supplied inadequately, even if it was done innocently.

In such cases, a Product Guarantee Insurance policy would likely respond to the claim. This type of policy is designed to cover the consequences of a product not meeting its intended specifications.

Claims Example

Claims can be tricky to navigate, and it's essential to understand which type of insurance policy will respond in a given situation. A Public/Products Liability insurer won't provide cover if an inadequate product is supplied, even if it's not intentional.

In a situation where a sprinkler system is installed to the correct specification, but doesn't suppress a fire as intended, the product itself hasn't directly caused the loss or damage. This is a clear example of when a Product Guarantee Insurance policy would respond.

Product Liability Insurance

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Product liability insurance is a must-have for anyone in the supply chain, not just manufacturers. It protects against bodily injury and property damage claims and lawsuits arising from your products' use.

The policy defines "Your Product" as any goods or products manufactured, sold, handled, distributed, or disposed of by you, which is a broad definition that includes anyone in the supply chain.

Here are the three areas that create product liability claims:

  • Defective Design—a product that is dangerous to use due to a design flaw
  • Manufacturing Defects—defects that occur during the manufacturing or production process
  • Defects in Marketing—providing improper instructions or failure to warn customers of dangers within the product

Without product liability insurance, you'll be responsible for all defense costs and any judgments awarded, which can be crippling to a business.

Product liability insurance can be provided through a commercial general liability policy or a product-specific policy, and it's designed to cover claims and lawsuits arising from your products' use.

Denied Claims

Denied Claims can be a frustrating experience, especially if you've been relying on a warranty to protect your purchase.

Manufacturers and retailers may deny warranty claims for various reasons, including instances where the product's defects are not covered by the warranty.

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You might be surprised to learn that even though manufacturers and retailers may offer warranties, they may not honor these promises in certain situations.

In fact, we've seen cases where manufacturers deny warranty claims due to misrepresentation of the product's condition, such as failing to disclose pre-existing damage.

Manufacturers may also deny warranty claims if the product has been modified or altered in a way that voids the warranty.

It's essential to carefully review the warranty terms and conditions before making a purchase, so you understand what is and isn't covered.

Insurance Options and Providers

AIG Warranty is a top-notch provider of warranty and insurance services for businesses and their customers. They've been around for over 30 years, providing innovative solutions for consumer product manufacturers.

Their warranty and insurance professionals have developed loyalty programs that can add new revenue streams for businesses. AIG Warranty's network of service providers offers in-home, depot, or advanced-exchange product repair or replacement service for a wide range of products, including major appliances, HVAC, and consumer electronics.

With operations in over 120 countries, AIG Warranty can provide multinational warranty solutions with dedicated account management and operational teams.

The Bottom Line

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Product warranty insurance benefits only the end user, as seen with extended warranties for cars and washing machines that cover repair or replacement costs.

This type of insurance is a money maker for retail establishments and insurance carriers, but doesn't necessarily provide value to the consumer.

It's essential to understand the fine print and weigh the costs against the benefits before purchasing such insurance.

Best Insurance Options

If you're looking for the best insurance options, you've got several types to choose from. Insurance Types include General Liability, Professional Liability, Product Liability, Liquor Liability, Cyber Liability, Inland Marine, Commercial Property, Completed Operations, Excess Liability, and Personal & Advertising Injury.

For product liability insurance, you can consider AIG Warranty, a premier services provider that offers warranty administration and customer service support. They've been doing this for over 30 years and have a network of service providers in 120+ countries.

AIG Warranty provides innovative solutions for consumer product manufacturers, including loyalty programs that add new revenue streams. Their warranty and insurance professionals help businesses provide reliable protection and support for their customers' purchases.

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Whether you're looking for in-home, depot, or advanced-exchange product repair or replacement service, AIG Warranty's got you covered. They offer services for major appliances, HVAC, consumer electronics, mobile devices, whole home, jewelry, furniture, and more.

Here are some of the insurance types you can consider:

  • General Liability
  • Professional Liability
  • Product Liability
  • Liquor Liability
  • Cyber Liability
  • Inland Marine
  • Commercial Property
  • Completed Operations
  • Excess Liability
  • Personal & Advertising Injury

Strategic Partnerships

Strategic partnerships are crucial for building strong relationships between insurance providers and their clients. This is where a company's expertise really shines.

They collaborate with clients to build new warranty programs and take over existing ones to support brands and build customer loyalty. This can be a game-changer for businesses looking to establish a loyal customer base.

Their dedicated team of actuarial, underwriting, and reinsurance experts provides clients with innovative warranty solutions and strategic counsel. This means clients get the best possible advice to align with their financial objectives.

Some of their warranty programs have been in place for 15+ years, demonstrating their commitment to delivering sustainable solutions that support clients' long-term objectives.

Here are some key benefits of their strategic partnerships:

  • Collaborative approach to building new warranty programs
  • Innovative warranty solutions tailored to clients' financial objectives
  • Sustainable warranty solutions that support clients' long-term objectives

AIG Solutions

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American International Group (AIG) offers a range of insurance solutions, including property and casualty insurance, life insurance, and retirement savings products.

AIG's property and casualty insurance products cover risks such as natural disasters, cyber attacks, and business interruption. They also offer specialized insurance solutions for industries like aviation and aerospace.

AIG's life insurance products include term life, whole life, and universal life insurance, which can provide financial protection for individuals and their loved ones.

AIG's retirement savings products, such as 401(k) and annuities, help individuals plan for their financial future and achieve their long-term goals.

AIG's insurance solutions are designed to help businesses and individuals manage risk and achieve financial stability.

Management and Owner Actions

As a product owner, you have a crucial role in managing warranty claims and ensuring a smooth process for your customers. A well-structured warranty program can help build trust and loyalty with your customers, but it requires careful planning and execution.

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You should establish clear procedures for handling warranty claims, including a dedicated email address or phone number for customers to submit their claims. This will help you stay organized and ensure that all claims are processed in a timely manner.

By responding promptly to warranty claims and keeping customers informed throughout the process, you can turn a potentially negative experience into a positive one, leading to increased customer satisfaction and loyalty.

Management

Having a solid warranty management system in place can be a game-changer for businesses. Our warranty programs include extended service plans, mobile insurance, and protection plans for retailers and manufacturers with 24/7 U.S.-based customer service.

Coverage depends on the actual facts of each case and the terms, conditions, and exclusions of each individual policy. Anyone interested in these products should request a copy of the standard form of policy for a description of the scope and limitations of coverage.

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A product failing to perform the intended function can be devastating for a company's brand name and profitability. A typical Product Guarantee Insurance policy will provide cover for claims made during the relevant policy period.

This cover is an annually renewable policy consisting of product guarantee, financial loss, and product recall.

Owner Actions

Owner Actions can significantly impact the outcome of a warranty claim. If a product fails due to the owner's actions, the warranty is unlikely to be honored.

Each company has its own process for addressing warranties, and they may require multiple proof points to show that the product failed in normal use.

Placing a product in an extreme environment, such as one that is too hot or too cold, can void the warranty. This is considered normal use, and the company may not be liable for the failure.

The owner's actions can be the primary cause of a product's failure, rather than a fault in the design or manufacturing.

Special Considerations

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As a manager or owner, it's essential to understand the special considerations that come with offering warranties to your customers. The act requires you to fully and clearly disclose the terms and conditions of warranties to the buyer before purchase.

You must clearly state whether it's a full or limited warranty, and avoid deceptive practices like including misleading or false terms. This means being transparent about what's covered and what's not.

The Uniform Commercial Code (UCC) provides additional consumer protection by including the implied warranty of merchantability. This warranty guarantees a remedy if the product fails to perform as designed.

Warranty terms can vary, but some might offer free repairs on the defective product, while others might provide complete replacement. You may need to instruct the owner to bring the product to an authorized repairman or ship it to the manufacturer for repair.

Special Considerations

When purchasing a product with a warranty, it's essential to know what you're getting into. The terms and conditions of warranties must be fully and clearly disclosed to the buyer before purchase, including whether it is a full or limited warranty.

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Manufacturers must be upfront about what's covered and what's not, so you're not surprised when you need to make a claim. This means no hidden fees or fine print to catch you off guard.

If a product doesn't perform as designed, the Uniform Commercial Code (UCC) provides an additional layer of protection, known as the implied warranty of merchantability. This warranty guarantees a remedy if the product fails to meet its intended purpose.

Altered Products

Warranties typically only apply to products that haven't been altered or modified after purchase.

Car enthusiasts often modify their vehicles, which can nullify warranty coverage of the modified components.

Modifications can affect a vehicle's reliability in ways the manufacturer and dealer aren't responsible for.

For example, changing a car's engine or drivetrain can void the warranty on those components.

Challenge

A product failing to perform can devastate a company's brand name and profitability.

A typical Product Guarantee Insurance policy provides cover for claims made during the relevant policy period. This cover is an annually renewable policy consisting of product guarantee, financial loss, and product recall.

Inconsistent service and cumbersome management can adversely affect a company's brand image.

A multinational manufacturer had 20 separate extended warranty programs in 20 countries with different providers, which is a complex situation to manage.

Frequently Asked Questions

What does a product warranty cover?

A product warranty covers repairs or replacements for faulty or damaged products within a specified time frame, ensuring you're protected against defects and issues. Learn more about the types of warranties and what's included in our warranty guide.

What is an example of product liability insurance?

Product liability insurance covers medical costs for customers injured by a defective product, such as a power tool. This type of insurance helps protect businesses from costly lawsuits.

Greg Brown

Senior Writer

Greg Brown is a seasoned writer with a keen interest in the world of finance. With a focus on investment strategies, Greg has established himself as a knowledgeable and insightful voice in the industry. Through his writing, Greg aims to provide readers with practical advice and expert analysis on various investment topics.

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