2012 Credit Card Extended Warranty Study

CardHub-2012-Credit-Card-Extended-Warranty-StudyUnbeknownst to many consumers, credit cards provide a number of ancillary benefits, including rental car insurance and extended product warranties. These benefits generally do not come from credit card issuers, but rather from the card networks that each card is linked to. In this study, we will explore the extended warranty programs offered by the four major card networks: Visa, MasterCard, Discover, and American Express.

Thirty-one percent of consumers purchase extended warranties each year, according to a study from the University of Maryland’s Robert H. Smith School of Business, at a cost of $1.6 billion. And while these warranties generally account for 3-4% of a company’s revenue, according to Business Week, they often represent as much as 50% of its profit, thanks to margins between 50% and 60%. As a result, extended warranties are generally regarded as being among the biggest money wasters for consumers, and the ability to garner necessary coverage at no cost through one’s credit card can provide a valuable source of savings.

Key Findings

  • All four major card networks extend original manufacturer’s warranties for up to one year for at least certain cardholder segments and will cover amounts up to $10,000.
  • American Express’ extended warranty policy received the highest cumulative score in this study (90%), while Discover finished second (80%),  MasterCard came in third (71%), and Visa placed last (67%).
  • Discover and American Express are the only networks that provide coverage to all cardholders.
  • Discover used to be the only network that required cardholders to purchase extended warranty protection but has since upgraded to an improved policy that is free for all cardholders.
  • None of the networks’ extended warranty programs require sign up or product registration.
  • None of the networks provide a product warranty on items that lack an existing manufacturer’s warranty.
  • MasterCard is the only network that excludes physical damage to an item from its coverage.
  • Many consumers purchase refurbished items from companies such as Apple, and American Express is the only network that will extend any manufacturer’s warranty provided with such purchases.
  • Consumers must keep their purchase receipts in order to be eligible for an extended warranty under each of the networks’ programs.
  • Card network warranty program administrators decide whether products should be repaired, replaced, or refunded.

Visa Discover MasterCard American Express

Likelihood of Coverage

33%

45%

35%

55%

Ubiquity on Network Cards 15% 30% 25% 30%
Purchases Covered 18% 15% 10% 25%

Scope of Warranty

24%

25%

26%

25%

Length of Warranty  18%  18%  18%  18%
Coverage Limit  6%  7%  8%  7%

Claims Process

10%

10%

10%

10%

OVERALL SCORE

67%

80%

71%

90%

Methodology

In compiling this report, we both explored publically available information and contacted Visa, Discover, MasterCard, and American Express directly in order to determine their policies regarding extended product warranties.

We then scored and ranked the networks based on three general criteria: the likelihood that cardholders will be covered when and if they have to file a claim with their credit card company, the scope of the warranty they receive, and the logistics involved with garnering an extended warranty and filing claims related to it. The breakdown of the scoring is as follows:

  • Likelihood of Coverage: 55%
    • Ubiquity on Network Cards: 30%
    • Purchases Covered: 25%
  • Scope of Warranty: 35%
    • Length of Warranty: 25%
    • Coverage Limit: 10%
  • Claims Process: 10%

Likelihood of coverage was weighted most heavily given that other factors are obviously inconsequential if a cardholder is not covered in the first place. On the other end of the spectrum, the claims process was given relatively little weight due to the lack of differentiation between networks and the fact that it would take a lot to deter consumers from filing a claim and getting major items repaired or replaced for free.

The scores for each category are based on our subjective opinion of how each network’s extended warranty program compares to an ideal extended warranty. In our opinion, an ideal extended warranty would be one based on common sense, where the average consumer would know what to expect without having to read the fine print. For example, an ideal policy would be free, would apply to all purchases made with any card linked to a particular network, and would last for more than a year.

Detailed Card Network Results

Who is Eligible & What is the Sign Up Process? (Corresponds to “Ubiquity on Network Cards”)
VISA
Score: 15/30
Policy:

  • The Warranty Manager program is available on all Visa Signature cards. This benefit may also be available on other card products at an issuer’s discretion. Warranty Manager is a program offered at no additional cost to the cardholder.
  • Sign Up & Product Registration: Although registration is not required for Extended Warranty Protection benefits, it is strongly encouraged that you send us your sales receipts and warranty information.

Discover
Score: 30/30
Policy:

  • As a Discover Cardmember, you are automatically eligible for Extended Warranty insurance.
  • Sign Up & Product Registration: None required.

MasterCard
Score: 25/30
Policy:

  • Extended warranty is core (we require issuers to offer) for MasterCard Gold, Platinum, World and World Elite. Issuers (banks) may also include the benefits on a standard MasterCard card, as well (but it’s at their discretion). We recommend all cardholders to check with their issuer on the eligible card benefits.
  • Sign Up & Product Registration: None required

American Express
Score: 30/30
Policy:

  • All American Express cards provide extended warranty protection on eligible purchases.
  • The basic Cardmember and any Additional Cardmembers on the account are eligible as long as they are U.S. Resident Cardmembers.
  • Sign Up & Product Registration: None required

Score Justification: All four networks are on equal footing in terms of not requiring cardholders to sign up for extended warranty coverage or register purchases in order to be covered. However, American Express and Discover provide this service to all cardholders and received perfect scores in this category as a result. MasterCard ranked third with a score of 25 given the near ubiquity of coverage on network cards, and VISA came in fourth with a score of 15 in light of the fact that coverage is only available on its Signature-branded cards.

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What Purchases are Covered? (Corresponds to “Purchases Covered”)

VISA
Score: 18/25
Policy:

  • Covered Items:
    • Many items of personal property which have a valid original manufacturer’s written U.S. repair warranty of 3 years or less and which you have purchased entirely on your eligible Visa card.
  • Exclusions:
    • Boats, automobiles, aircraft, and any other motorized vehicles and their motors, equipment, or accessories, including trailers and other items that can be towed by or attached to any motorized vehicle.
    • Any costs other than those specifically covered under the terms of the original manufacturer’s written U.S. repair warranty.
    • Items purchased for resale, professional, or commercial use.
    • Real estate and items which are intended to become part of real estate including, but not limited to, items that are hard-wired or hard-plumbed, garage doors, garage door openers, and ceiling fans.
    • Rented or leased items, or items purchased on an installment plan and for which the entire purchase price was not paid in full at the time of the occurrence.
    • Computer software.
    • Medical equipment.
    • Used or pre-owned items.

Discover
Score: 15/25
Policy:

  • Covered Items:
    • Personal property, including gift items, that have existing warranties of 36 months or less and are not otherwise excluded that is purchased in full by the Insured Person using your Discover Card.
  • Exclusions:
    • Insurance under this Policy does not apply to Covered Purchases that:
      • Are services, including but not limited to the performance or rendering of labor or maintenance, repair or installation of goods or property or professional advice;
      • Are shipping, transportation or delivery costs;
      • Are boats, automobiles, aircraft or any other motorized vehicles, or motorized vehicle parts subject to high risk, combustible wear and tear or mileage stipulations;
      • Are land, buildings, permanently installed items, fixtures or structures;
      • Are plants, shrubs, pets, consumables or perishables;
      • Are computer software or applications;
      • Are purchased for resale, professional or commercial use;
      • Are still covered under the U.S. Manufacturer Warranty or Purchased Warranty;
      • Did not originally come with a U.S. Manufacturer Warranty or Purchased Warranty;
      • Are used, rebuilt, refurbished or remanufactured.
    • Insurance under this Policy does not apply to defects in material or workmanship of a Covered Purchase that are:
      • Not covered under the terms of either the original U.S. Manufacturer Warranty or Purchased Warranty
      • Repaired at a repair facility that is not authorized by the original product manufacturer;
      • Covered by a product recall;
      • The result of a power surge;
      • The result of normal wear and tear;
      • The result of any hazardous, pathogenic or poisonous, biological, chemical, nuclear or radioactive material, gas, matter or contamination.

MasterCard
Score: 10/25
Policy:

  • Covered Items:
    • Most items you purchase entirely on your MasterCard card for yourself or as a gift that have a warranty of 12 months or less (5 years or less for Corporate cards)
  • Exclusions:
    • Used or antique items; collectibles of any kind that do not come with manufacturer’s warranty; recycled, previously owned, refurbished, rebuilt, or remanufactured items; product guarantees (ex. Glass breakage); or “satisfaction guaranteed” items
    • Floor models that do not come with original manufacturer’s warranty
    • Motorized vehicles, including, but not limited to automobiles, watercraft/boats, aircraft, and motorcycles, or their motors, equipment, or accessories. Parts, if purchased separately, may be covered.
    • Land, any buildings (including, but not limited to, homes and dwellings), permanently installed items, fixtures, or structures
    • Plants, shrubs, animals, pets, consumables, and perishables
    • Professional services (including, but not limited to, the performance or rendering of labor or maintenance; repair or installation of products, goods, or property; professional advice of any kind, including, but not limited to, information/services or advice secured from any help or support line; or technical support for software, hardware, or any other peripherals
    • Application programs, operating software, and other software
    • All types of media with stored data or music (including, but not limited to, computer software, DVDs, video cassettes, CDs, film, and audio cassettes
    • Any shipping, transportation and delivery charges, or promised time frames for delivery, whether or not stated or covered by the manufacturer’s warranty
    • Direct or indirect losses resulting from any Acts of God (including, but not limited to, flood, hurricane, lightning, and earthquake).
    • Indirect or direct damages resulting from a covered loss
    • Mechanical failure arising from product recalls
    • Trip, service, or diagnostic charges in the absence of any covered repairs or verified failure
    • Loss resulting from war or hostilities
    • Mechanical failures caused by normal wear and tear or gradual deterioration where no failure has occurred.
    • Items purchased for resale, professional, or commercial use
    • Mechanical failures caused by lack of maintenance/service
    • Losses caused by power surge, or contamination by radioactive or hazardous substances, including mold
    • Physical damage to the item
    • Any exclusion listed in the original manufacturer’s warranty
    • Interest or conversion fees that are charged to you or the covered card by the financial institution

American Express
Score: 25/25
Policy:

  • Covered Items:
    • Extended Warranty can extend the terms of an original manufacturer’s warranty for a period of time equal to the duration of the original manufacturer’s warranty, up to one (1) additional year on warranties of five (5) years or less that are eligible in the United States of America.
    • Refurbished items with a warranty are eligible for coverage under Extended Warranty.
  • Exclusions:
    • Products covered by an unconditional satisfaction guarantee;
    • Motorized vehicles (including, but not limited to, passenger cars, trucks, motorcycles, boats, airplanes) and their parts, subject to high risk, combustible, wear and tear or mileage stipulations (including, but not limited to, batteries, carburetors, pipes, hoses, pistons, brakes, tires, or mufflers);
    • Motorized devices and their parts used for agriculture, landscaping, demolition or construction;
    • Motorized devices and their parts which are permanent additions or fixtures to a residential or commercial building;
    • Business fixtures, including, but not limited to, air conditioners, refrigerators, heaters;
    • Land or buildings;
    • Consumable or perishable items;
    • Animals or living plants;
    • More than one article in a pair or set. Coverage will be limited to no more than the value of any particular part or parts, unless the articles are unusable individually and cannot be replaced individually, regardless of any special value they may have had as part of a set or collection;
    • Items still under installment billing;
    • Additional service contract or extended warranty coverage for a computer, computer component or part that You buy which already comes with an original United States of America manufacturer’s warranty, unless such coverage is provided and administered by the original manufacturer; and
    • Items purchased for resale, professional, or commercial use. (Note: These are eligible for coverage on all Small Business American Express Cards).
    • Any physical damage, including, but not limited to, damage as a direct result of natural disaster or a power surge, except to the extent the original manufacturer’s warranty covers such damage;
    • Mechanical failure covered under product recall; or
    • Fraud or abuse or illegal activity of any kind by the Cardmember.Full terms and conditions for one’s American Express credit card can be found at www.americanexpress.com/benefitsguide.

Score Justification: There are essentially two differentiating factors when it comes to the purchases that the four networks’ extended warranty programs cover: 1) Types of purchases covered and 2) Limitations based on the length of the original manufacturer’s warranty. American Express and Visa ranked highest in terms of the types of purchases covered given Discover and MasterCard’s limitations. Both Discover and MasterCard are the only networks to explicitly exclude “normal wear and tear” from coverage, which creates confusion in the mind of the consumer and makes it difficult to draw the line between what’s covered and what’s not. MasterCard takes things a step further, listing among its exclusions physical damage to an item or mechanical failure caused not only by normal wear and tear, but also product recall and lack of maintenance – which could be used to practically eliminate coverage for all items that experience any kind of mechanical failure.

Limitations based on the length of the original manufacturer’s warranty are important because they can result in coverage being excluded for certain purchases just because their original warranties are deemed too long. For example, an item that has an existing warranty of 18 months would not be eligible for coverage if purchased with a MasterCard general-consumer credit card because MasterCard only covers items with original warranties of 12 months or less. As a result, MasterCard received the lowest marks in this subsection. VISA , Discover and American Express have similar provisions, but their timeframes are significantly longer than MasterCard’s 12 months. VISA and Discover will not cover items with existing warranties longer than three years, and American Express only restricts coverage for products with existing warranties of longer than five years.

All things considered, American Express ranked first in this category with a score of 25/25 due to its high marks in terms of both the types of purchases it covers (it is the only network to include refurbished items that have warranties) and its lack of limitations based on the length of the manufacturer’s original warranty. VISA came in second with a score of 18/25 because while it ranked highly in terms of the types of purchases it covers, its length of coverage is not on par with that of American Express. Discover finished behind VISA with a score of 15/25 due to its wear-and-tear limitation. MasterCard ranked last with a score of 10/25 in light of its exhaustive list of exclusions and the stipulation that coverage for general-consumer credit cards will only be provided for items that have existing manufacturer’s warranties of 12 months or less. While MasterCard’s corporate cards provide coverage on items that have existing manufacturer’s warranties of five years or less, this is not enough for it to overcome its other limitations.

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How Long do the Warranties Last? (Corresponds to “Length of Warranty”)

VISA
Score: 18/25
Policy:

  • On eligible purchases (see previous section), VISA will double the time period of the original manufacturer’s written U.S. repair warranty up to 1 additional year.

Discover
Score: 18/25
Policy:

  • We will duplicate the time period of the original U.S. Manufacturer Warranty and any Purchased Warranty on an Insured Person’s Covered Purchase, up to a maximum of 12 months. If a U.S. Manufacturer Warranty or a Purchased Warranty is made up of multiple components, We will duplicate the time period of each component. If the total time period for the U.S. Manufacturer Warranty and the Purchased Warranty is greater than 36 months there is no coverage under this Policy. In no event will the total time period for all warranties, including this Policy, exceed 48 months.

MasterCard
Score: 18/25
Policy:

  • On eligible purchases (see previous section), MasterCard will double the original manufacturer’s or store brand warranty for up to 12 months.

American Express
Score: 18/25
Policy:

  • On eligible purchases (see previous section), American Express Cardmembership can extend the terms of the original U.S. manufacturer’s warranty for up to 1 additional year.

Score Justification: All four networks offer extended warranties that last for up to 12 months and received scores of 18/25 as a result.

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What is the Coverage Limit? (Corresponds to “Coverage Limit”)

VISA
Score: 6/10
Policy:

  • Up to a maximum of $10,000.00, as recorded on your Visa Signature card receipt, and $50,000.00 maximum per cardholder (over the course of the cardholder’s lifetime).

Discover
Score: 7/10
Policy:

  • We will duplicate the terms, conditions and limitations of the U.S. Manufacturer Warranty and any Purchased Warranty on an Insured Person’s Covered Purchase up $10,000 for repair to defects in material or workmanship in a Covered Purchase; or for replacement of a Covered Purchase if repairs to defects cannot be made. This coverage only applies if the Insured Person charged or debited the entire cost of the Covered Purchase to the Insured Person’s Account during the Policy period
  • We will reimburse the Insured Person for the lesser of:
    • The cost of the Covered Purchase indicated on the Insured Person’s Account statement; or
    • The actual cost to repair or replace the Covered Purchase with an item of like kind and quality; or
    • The Maximum Benefit Amount of $10,000.
  • In no event will We be liable beyond the amounts actually paid by the Insured Person.
  • In no event will We pay more than the Annual Maximum Benefit Amount, of $50,000, in any 12 month Policy period, regardless of the number of claims made in that 12 month Policy period.

MasterCard
Score: 8/10
Policy:

  • For each claim a cardholder makes, the maximum benefit for repair or replacement shall not exceed the actual amount charged on your covered card or $10,000, whichever is less.
  • There is no limit to the number of claims that a cardholder can file over a certain time period.

American Express
Score: 7/10
Policy:

  • The amount charged to your Card for the item or $10,000, whichever is less, not to exceed $50,000 per Cardmember account per calendar year.

Score Justification: While all four networks have the same $10,000 limit per claim, MasterCard ranks above the rest given that there is no limit to the number of claims you can make (and therefore the total amount of coverage you can receive) over a certain time period. Discover and American Express tie for second given that they impose a $50,000 coverage limit per cardholder per year. VISA cardholders can only receive $50,000 worth of benefits in their lifetime and therefore finish last. Little difference exists in the scores assigned to the four networks given that when you exclude motor vehicles from coverage (which all do), there aren’t many types of purchases that both have a manufacturer’s warranty and cost more than $10k. It’s therefore unlikely that many consumers will approach any of the aforementioned coverage limits.

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How do Cardholders File Claims? (Corresponds to “Claims Process”)

VISA
Score: 10/10
Policy:

  • Call the Benefit Administrator at 1-800-882-8057 immediately upon learning of a product failure, or go to www.visa.com/eclaims.
  • To file a claim, copies of your Visa Signature card receipt, your store receipt, the original manufacturer’s written U.S. warranty, and any other applicable warranty are required. You will need to retain copies of these records unless the purchase is registered.
  • If you do not give notice within 60 days after the product failure, your claim may be denied. The claim form must be completed, signed, and returned with all the requested documentation within ninety 90 days of the product failure.
  • The item will be repaired or replaced at the Benefit Administrator’s discretion, but for no more than the original purchase price of the covered item, up to a maximum of $10,000.00, as recorded on your Visa Signature card receipt, and $50,000.00 maximum per cardholder.

Discover
Score: 10/10
Policy:

  • Simply call to report your claim within 45 days after the loss or damage occurs. A customer service representative will help you with everything you need to file a claim.

MasterCard
Score: 10/10
Policy:

  • Call 1-800-MC-ASSIST to request claim form. You must report the claim within 30 days of the failure or the claim may not be honored.
  • Submit the following documentation within 90 days of the date of failure or the claim may not be honored:
    • Completed and signed claim form
    • MasterCard receipt showing covered item
    • Itemized purchase receipt
    • Original manufacturer’s (or U.S. store brand) warranty
    • Service contract or optional extended warranty, if applicable
    • Itemized repair estimate from a factory-authorized service provider
    • Any other documentation that reasonably may be requested to validate a claim
  • The administrator will decide if a covered failure will be repaired or replaced, or whether you will be reimbursed up to the amount paid for the item. Items will be replaced with those of like kind and quality.

American Express
Score: 10/10
Policy:

  • Call 1-800-225-3750 or submit a claim online: https://www295.americanexpress.com/onlineclaim/
  • You must provide proof of purchase and satisfactory proof of the covered Occurrence while coverage is in effect to qualify. Keep all your American Express charge receipts, original store receipts, original manufacturers’ warranties, and products requiring repair until the claim process is complete. You may also be asked to obtain a repair estimate.
  • The program administrator will decide whether to have the item repaired or replaced, or to reimburse you up to the amount charged to the Card, and not to exceed the original purchase price.

Score Justification: Aside from the timeframes in which consumers must notify their networks of covered occurrences and submit documentation, the networks’ claims processes differ very little from one another. And since consumers are unlikely to file a claim and say that a covered occurrence happened outside of the acceptable window, all of the networks received perfect scores in this category.

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