If you’ve bought anything with a significant value recently, from a fridge to a phone, then chances are you’ll have been asked at the checkout if you want to take out a warranty or service contract.

Regardless of whether you buy online or shop on the high street, I’ll bet you’ll have said yes at least a few times, because you’ve weighed up the possibility of disasters occurring and thought you’d regret it if you said no.

We tend to err on the side of caution when it comes to these policies and agreements, despite the fact that we already have a number of consumer protection laws in place to cover you if something goes wrong with a purchase. In fact, you may be covered for some types of damage to goods under your home insurance too.

But are warranties, service contracts and guarantees any good? These contracts do have a bit of a bad reputation. Warranties are often overpriced, offering services that you may be covered for already through manufacturer’s guarantees or other insurance policies. They can contain tons of baffling or 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. Yet manufacturer’s guarantees are often a lot worse… and that’s before we chuck service contracts in to the mix too!  Here’s my guide to what the policies are and what to watch out for.

Guarantees, warranties and service contracts

There are three main kinds of agreement you can purchase – or get thrown in with the deal – when you buy goods.

A warranty is a regulated insurance contract you purchase to protect an item. These insurance contracts are known as ‘specialist insurance contracts’, meaning they cover a specific item rather than lots of things collectively and can insure anything from a sofa to car. Warranties exist so things you buy can be repaired or replaced if they break, get damaged or are pinched. The insurance underwriter, not the retailer or manufacturer, is in charge of making the decision about a claim.

A guarantee is usually included for free when you buy something and is effectively an assurance from the manufacturer that they will repair or replace the item or give you a refund if it becomes faulty within a set period of time. Many guarantees these days have to be ‘activated’ so don’t ignore the docs in the box!

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 more or less the same way though, except the agreement to repair or replace the item is made with the retailer or provider of the contract.

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 but make sure you ask when you make the purchase. Here’s why it matters.

Your rights, if things go wrong

You have lots of statutory rights when things go wrong with goods or services you purchase, though there are time limits. I often mention these legal rights in my column but you can’t repeat them enough!

14 days: if you bought goods or services online then you can return the item within 14 days even if there’s nothing wrong with it.

30 days: The Consumer Rights Act says that you are entitled to a full refund if the goods or services don’t work, aren’t as advertised (misrepresented) or aren’t provided.

Six months: If the goods are faulty within a six-month period from the date of purchase, you can still return them, but it’s up to the retailer (not the manufacturer) to prove that they weren’t faulty when you bought them. You have to give them one chance at repairing or replacing the goods before a refund applies though.

Over six months: Goods still have to last a ‘reasonable’ amount of time. You can still complain and ask for repairs, replacements or refunds over the six-month timescale if the item isn’t working as it should be. So if your dishwasher packs in at the three-year point, you can argue it’s not lasted a reasonable amount of time.

Up to three years. Most guarantees will cover you for a period of around 1-3 years though I’ve seen a few lately that have much stingier timescales. These guarantees relate almost exclusively to faults though and won’t cover you for theft, accidental damage, pets with a grudge that like to destroy sofas or other unexpected events.

The pros and cons of guarantees, service contracts and warranties

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 the item to your home insurance for additional cover rather than by an additional warranty. However, I’d check to see precisely what your guarantee covers. If you have a smart watch and you aren’t covered for water damage or scratches, then you might want to take out a specific insurance policy to cover the item regardless, given we live in a country where it rains all the time.

Service contracts can look so similar to insurance contracts, you’d be forgiven for thinking they are the same thing. In fact, it’s only when you’re unhappy after making a claim that these differences become vital. Disputes over guarantees and service contracts are solely between you and the business you have the agreement with. So if you get turned down, you’d have to go to the small claims court if you wanted to take your complaint further.

If you make a claim on a warranty, the underwriter of the insurance policy 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 10 (other phone brands are available) then you won’t get a lovely new iPhone 15 pro – you only get the cash to replace purchasing an iPhone 10 at its current market value.

This is where things get a bit contentious. Because warranties are among the most complained about insurance products because the wording in many policies is vague, ambiguous or so prohibitive it’s hard to know how they’d ever pay out. Not all warranties are bad, but it makes sense to shop around online and look at reviews of insurers too, to find the best deal. Don’t just buy from the retailer – you’ll pay more and often get less. You may find that taking out a specific gadget insurance policy for multiple electronic items is a more cost-effective way to cover expensive equipment – and the policies are more generous with their terms and limits.

The best thing about warranties and specialist insurance products are they are regulated financial products, so you can make a complaint to the Financial Ombudsman Service (FOS) if you are unhappy with how a claim goes. It’s free to do this too – and the ombudsman has been known to overturn many an unfair decision by an insurer!

Featured in Mirror – Martyn James

Please share me around

Share useful info with your friends