Understanding the Difference Between Extended and Manufacturer Warranties.

Author:Scott, Tom

* Generally defined, a warranty is a contract between a company and a consumer in which it's agreed that the company will replace or repair a consumer's purchase if it breaks within a specific time period. Structured as such, all warranties basically point toward a similar goal with advantages that vary depending on industry and coverage.

From a consumer products perspective, there are two types of warranties that dominate the industry: manufacturer warranties and extended warranties. Though these warranties differ greatly, each offer substantial benefits for both consumers and retailers.

Manufacturer warranty: automatically included

Otherwise referred to as "limited warranties," manufacturer warranties are automatically bundled with the purchase of a manufacturers product. What makes them "limited?" Manufacturer warranties are only viable for a very specific window of time following the product purchase date. Generally, this time frame ranges from 90 days to an entire year with coverage offered as a product replacement plan rather than a complete repair option. Terms and conditions are exclusively outlined by the manufacturer, including customer rights, manufacturer responsibilities, and defined scenarios when a product would qualify for replacement or repair.

Extended warranty: longer periods of protection

Intended to lengthen the coverage period, extended warranties are designed similarly to manufacturer warranties--with a few differences. These warranties are often known as "service contracts," and are available from the retailer at the point of purchase. Unlike manufacturer warranties, extended warranties are not automatically attached to products and require an additional fee to utilize their offerings. Additionally, while extended warranties protect a product for a longer period of time, they do not extend the terms and conditions put in place by the original manufacturer. Instead, they typically carry additional or updated terms to ensure the benefits of extended protection.

Value for retailers

Additional protection sounds great for consumers--but how do warranties benefit retailers? For starters, these warranties can create additional lines of revenue. Whether extended or manufacturer coverage...

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