Service plans or warranty insurance? What is suitable for you?
At first glance, service plans and warranty insurance policies might appear to offer something very similar – both aim to extend the useful working life of any number of household goods and appliances, from motor cars down to the humble toaster.
However, there are crucial differences, which it might be helpful to distinguish in choosing which is the right product for you.
Service plans are very much what they say – involving your paying in advance for periodic servicing of your machine or appliance including the repair or replacement of working parts which might have failed.
Therefore, they are sometimes also described as service and repair plans – but you might also see them described as protection plans, care plans or extended warranties.
Perhaps most commonly used for motor cars, service plans may also be offered for domestic appliances such as gas boilers, AGA ranges, washing machines and washer dryers. They seem to be favourites of manufacturers and retail shops, although the latter have gained a reputation for selling such plans at very high prices, sometimes amounting to the cost of replacing the appliance as new.
Service plans typically provide for the periodic servicing and maintenance of the machine or appliance, replacing or repairing parts which may have worn out and, in the case of some companies, providing “pre-emptive” replacement of parts deemed likely to tail before the next scheduled service.
The service plan represents a contract between you and the manufacturer or retailer, but does not have the force of an insurance contract and the sale of such plans is therefore not regulated by the Financial Conduct Authority (FCA) or given the protection of the FCA’s Compensation Scheme (FCACS) if the provider fails to deliver the promised services or goes into liquidation.
For that degree of protection and reassurance it is necessary to look to the closely regulated world of warranty insurance – which may be sold only by those authorised by the FCA and backed up by the Financial Services Compensation Scheme. One such provider is ourselves at KAPUT.
Kaput Ltd (FCA No. 700071) is an Appointed Representative of Commercial & General Ltd. Commercial & General Ltd is authorised and regulated by the Financial Conduct Authority (FCA No. 300001). Kaput Ltd insurance policies are arranged through Commercial & General Ltd and UK General Insurance Ltd on behalf of Ageas Insurance Ltd.
Like other forms of insurance, warranty insurance is likely to differ in its exact details from one provider to another.
Typically, however, the insured risk is the mechanical or electrical failure of the appliance in question – theft and accidental damage are generally excluded.
In the event of such a failure or break down, the insurance generally gives you access to a UK contact centre, which then arranges, through a network of approved repairers, for a qualified engineer to come to your home and attempt to repair the broken appliance.
If the appliance proves to be beyond repair, the insurance policy may provide either the full cost of replacing it as new or a contribution towards such costs – depending on the age and value of the appliance.
Typically, the maximum age of appliances covered under such warranty insurance is eight years.
Many warranty insurance providers offer attractive discounts on the necessary premiums if a whole bundle of domestic appliances are included in the same policy – this might extend to a given number of appliances, say up to ten, or to an unlimited number.
In a press release we issued earlier this year KAPUT warned that as many as 70% of consumers failed to appreciate the way in which warranty insurance works and that the age group most likely to have this gap in their knowledge are 45 to 54 year olds.