Upon buying a new piece of technology—new phone, new TV, new game console—often the salesperson will ask you if you would like to purchase an extended warranty with it.
Warranties and insurance may seem similar on the surface, but in fact they have more than a few differences.
To clarify, insurance agents and insurance companies provide insurance as a contract—a policy. Those under the contract are policyholders, and when they suffer a loss, the insurance company compensates them for that loss.
On the other hand, manufacturers usually provide warranties for the products you purchase. If a product doesn’t work as intended, it can be repaired, returned or exchanged. Most warranties only apply under certain conditions and time periods.
In a general sense, warranties and insurance both provide compensation for you in case something is damaged (or injured, in the case of health insurance). However, their scope and applications are quite different.
What is a warranty?
Warranties cover specific failures in a certain period. For example, you may purchase a phone with a 90-day manufacturer’s warranty on software, hardware or mechanical errors. The cost of the manufacturer’s warranty is included in the purchase.
Usually, extended warranties are extensions on the initial manufacturer warranty. Some extended warranties may offer coverage that’s comparable to insurance, but still work in the framework of being a warranty.
Android Authority, one of the largest independent tech publications, notes the extensive coverage provided by these kinds of warranties, but also its limitations.
Prices and price plans for extended warranties and premium warranties may vary by company and product.
What is insurance?
Insurance comes in handy in case something goes wrong. It’s there to cover you financially when the unexpected happens. After purchasing a phone, you also may get phone insurance through a provider, which can provide coverage in case the phone screen cracks or is damaged by water.
You pay a premium for insurance, typically in the form of a monthly installment and determined by a variety of factors. With car insurance, when evaluating a client’s insurance application, your carrier considers your credit score, motor vehicle driving report, and history of auto claims (among other deciding factors) before issuing you an insurance quote.
From there, if you are in a car accident, and you are injured, your independent insurance agent will help you submit a claim to help pay for damages and injuries.
Once you’ve paid your deductible, insurance should pay for the rest—minus any exclusions. There are also policy limits, which is the maximum amount of money that an insurance company will pay given a claim[BJLE1] .
How are they regulated differently?
Another major difference between warranties and insurance, is, of course, how they are regulated. Insurance is a highly-regulated industry at the state level. Every state has insurance specific statutes and regulations that govern all facets of insurance, from what provisions must be in an insurance policy to the procedures that must be followed to terminate that policy. Each state also has state agency responsible for enforcing those laws and regulations.
Warranties, on the other hand, aren’t as strictly regulated. At the state level, warranty contracts fall under state contract and consumer protection laws. These laws will provide more general protections than the often-hyper-specific laws and regulations found in insurance.
Warranties also don’t have a department for each state either, outside of the more limited protections provided by a state’s Department of Consumer Protection. Federally, warranties are controlled by the Magnuson-Moss Warranty Act.
For insurance and optional warranties, what’s best?
Insurance is important. In cases, state law requires you to have certain types of insurance (e.g., car insurance, except in New Hampshire). If you have a question about a certain type of insurance or coverage limit, give your independent insurance agent a call. They can review the types of insurance that may work best for you.
When it comes to optional warranties for your devices or home equipment, that may be trickier to answer. Do you have the disposable income for coverage like this? How well do you maintain what’s covered? How intensely and often do you use them? It’s important to review the terms of the warranties to see if they really add value to the item you’ve purchased.
Matt McDonough is PIA Northeast's writer, editor and content curator. Matt joined PIA Northeast in September 2023. Before that, he had been an editor for the online entertainment magazine Collider from 2021-23 as a copy editor for its lists section. Matt entered the world of journalism at his alma mater, SUNY New Paltz, writing and reporting for the college's student run newspaper, The New Paltz Oracle. He graduated from SUNY New Paltz with a Bachelor of Arts in English and a minor in Creative Writing in 2020.