Types of insurance: warranties and guarantees: general
A ‘warranty’ or ‘guarantee’ may constitute either of the following types of supply:
- an undertaking, or guarantee, given by the retailer or manufacturer to the customer that if goods should prove to be faulty within a certain time limit then they will bear the cost of providing the appropriate repairs or replacement parts; and
- a separate warranty, usually provided by someone other than the retailer or manufacturer, which provides cover against the risk of the goods proving to be faulty within a certain period.
Situation (a) covers the basic (usually) twelve month warranty that effectively covers the trader’s responsibilities under the Sale of Goods Act. This may have some or all of the characteristics of insurance (see VATINS2110) but will not be insurance if the warranty is a consequence of the contract of sale, under which the substance of the provider’s obligation is the sale of goods that meet the required standard.
Situation (b) typically covers supplies of ‘extended warranties’ and similar services. The liability of a charge for this type of warranty is considered in VATINS3720.