What's the Difference Between Insurance Policies, Warranties, and Extended Warranties?

Jacob Stein
August 20, 2018

Insurance, warranties, extended warranties, service contracts. Consumers hear these terms thrown around all the time, and often in the same context. It’s understandably easy for shoppers to become confused. Think about the experience of buying a car: cars must be insured but car brands often also boast about their warranty. Is the warranty the same thing as the insurance policy? What does each one cover?

It’s important for consumers to be informed and for businesses to be transparent about the nuances of each. Let’s dive into the differences between insurance, warranties, and service contracts and explore how each is used.


Insurance is likely the term consumers hear used most frequently. According to the International Risk Management Institute, the main components of an insurance policy are:

  • The contractual agreement in which one party (the insurer) will reimburse another party (the insured) for damages to a designated object by specific causes.
  • The “premium” - the payment the insured submits to the insurer in order to be considered for reimbursement.

The key thing to note about insurance policies is that they provide protection from unforeseen circumstances, such as a tree falling on a house or a reckless driver hitting your car on the highway.


Warranties are a manufacturer’s promise to stand behind their product and are included in the cost of an item. They are different than insurance policies because:

  • They cover loss and damage caused by faulty manufacturing rather than circumstances out of the manufacturer’s control.
  • If a product malfunctions due to the manufacturer’s error, the manufacturer or seller will cover either the cost of repair or replacement.

The duration and types of damages covered by a warranty vary by the manufacturer or seller, but warranties also often do not cover accidental damage. They typically last only a couple of years.

Service contracts

Service contracts, more commonly known as “extended warranties,” are notably different than standard warranties.

  • Customers must choose to purchase an extended warranty while standard warranties come included with a product.
  • The greatest benefit of investing in an extended warranty is that most cover accidental handling and damages caused by factors other than a manufacturing flaw.

Extended warranties are actually more similar to insurance policies than they are to standard warranties. Clyde allows any business to offer its customers service contracts at the point of sale.

For more information on extended warranties, check out this post. If you’re interested in setting up a product protection program for your store in less than three minutes, schedule a demo or drop us a line at!

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