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A warranty in insurance is a promise or guarantee made by the insured to the insurer, which must be upheld. It is a statement or condition that needs to be met for the insurance policy to remain valid.

What is a Warranty in Insurance?

A warranty in insurance is a crucial part of any insurance policy. It is a condition that the policyholder agrees to when they purchase an insurance policy. This condition can be a statement of fact or a promise to do or not do something during the period of the policy.

For example, if you own a business and take out an insurance policy for your company’s assets, you might have a warranty in your policy that states you must have a working security system in place. This means you have guaranteed the insurer that you will maintain an operational security system throughout the period of the insurance policy. If a claim is made and it is discovered that the security system was not working at the time of the incident, the insurer may refuse to pay the claim.

Warranty Graphic Insurance Glossary

Key Components of Warranty

There are three key components of a warranty in insurance:

  1. Statement of Fact:

    • This is a declaration made by the insured about the condition of the insured item or situation at the time the policy is taken out. For instance, stating that your business premises have a fire alarm system installed.
  2. Promise to Maintain Condition:

    • This involves the insured promising to maintain a certain condition throughout the policy period. For example, a business owner may promise to regularly service their fire alarm system as part of their insurance policy.
  3. Consequences of Breach:

    • If the insured fails to uphold a warranty, it may lead to the insurer refusing to pay a claim or even canceling the policy. The consequences of breaching a warranty are often severe because it can invalidate the entire policy.

Types of Warranty Covered

There are several types of warranties in insurance, each serving a different purpose. Here are four different types of warranties:

Affirmative Warranty

This is a statement of fact that must be true when the policy starts. For example, stating that your business premises have a burglar alarm when you take out the policy.

Continuing Warranty

This type of warranty must be true throughout the entire policy period. For example, a continuing warranty might require a business to ensure their fire safety equipment is always in working order.

Implied Warranty

These are warranties that are not explicitly stated in the policy but are assumed to be in place. For example, there is an implied warranty that a commercial vehicle used for business purposes is roadworthy.

Express Warranty

This is a warranty explicitly stated in the policy. For example, a business owner may expressly warrant that they will not store flammable materials on their premises.

How Insurance Covers Warranties

Insurance covers warranties by including them as conditions within the insurance policy. These conditions need to be met for the policy to remain in force. If the insured meets these conditions, the insurer is obligated to cover the insured risks as specified in the policy.

For business insurance, warranties might include maintaining certain safety measures, such as having working fire extinguishers, security systems, or following specific protocols for handling hazardous materials. If the business owner adheres to these warranties, they can expect coverage for incidents that fall under the policy.

For example, if a business insurance policy has a warranty that requires the installation of a security system, and the business owner installs and maintains this system, the insurer will cover theft or damage claims related to break-ins.

Warranty Photo Insurance Glossary