Credit Card Extended Warranty Study: What Type of Credit Card is Best?

Extended WarrantyUnbeknownst 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

 

  • American Express’ extended warranty policy received the highest cumulative score in this study (91%), while Visa placed last (77%) due to the fact that it is the only network that does not provide coverage to all cardholders.
Scores
  • 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 and Discover exclude failure caused by wear and tear to an item from their coverage, which can make it more challenging for consumers when filing a claim.
  • Many consumers purchase refurbished items from companies such as Apple; American Express and Visa are the two networks 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.
  • When you file a claim, it will be up to the card network’s warranty program administrators to determine whether products should be repaired, replaced, or refunded.
  • American Express and Discover both received full marks for their transparency in regards to their extended warranty policies, while MasterCard was last with a score of 8.5/10.

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Side-by-Side Comparison

 

Visa Discover MasterCard American Express
Eligible Cards Only Visa Signature cards All cards All cards All cards
Sign Up No sign up or product registration required No sign up or product registration required No sign up or product registration required No sign up or product registration required
Coverage Exclusions Motorized vehicles, collectibles, professional / commercial items, items intended for resale, perishables, rented / leased items, software, real estate Motorized vehicles, collectibles, professional / commercial items, items intended for resale, perishables, rented / leased items, software, real estate Motorized vehicles, collectibles, professional / commercial items, items intended for resale, perishables, rented / leased items, software, real estate
AND any media storage device with data on it
Motorized vehicles, collectibles, professional / commercial items, items intended for resale, perishables, rented / leased items, software, real estate
Length of Original Warranty Exclusion Items with an original warranty of up to 3 years are eligible Items with an original warranty of up to 3 years are eligible Standard, Gold and Premium Cards: items with an original warranty of up to 1 year are eligible
World Cards: items with an original warranty of up to 2 years are eligible
Items with a combined original and purchased extended warranty of up to 5 years are eligible
Rewards Exclusion Items bought with credit card points are eligible Items bought with credit card points are eligible Items bought with credit card points are eligible Items bought with credit card points are eligible
Wear and Tear Exclusion Wear and tear damage is covered Wear and tear damage is NOT covered Wear and tear damage is NOT covered Wear and tear damage is covered
Refurbished Items Exclusion Refurbished items with original warranty are eligible Refurbished items are NOT eligible Refurbished items are NOT eligible Refurbished items with original warranty are eligible
Length of warranty The original warranty will be extended by up to 1 year. The original warranty will be extended by up to 1 year. Standard, Gold and Premium Cards: The original warranty will be extended by up to 1 year.
World Cards: The original warranty extended by up to 2 years.
The original warranty will be extended by up to 1 year.
Amount of Coverage Up to $10,000 Up to $10,000 Up to $10,000 Up to $10,000
Claims Limit $50,000 per cardholder $50,000 per cardholder, per year No limit imposed $50,000 per cardholder, per year
How to File a Claim 1-800-882-8057
File Online
1-800-347-2683 1-800-622-7747 1-800-225-3750
File Online
Full Policy Details Visa Extended Warranty Policy Discover Extended Warranty Policy MasterCard Extended Warranty Policy American Express Extended Warranty Policy

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Quality of Coverage Scoring

 

Network Scores

 

*The methodology used to conduct this report has been updated since 2012, which means direct comparison of a given network’s scores from the two years is not advisable. The ranking hierarchy would still be relevant, however.

 

Category Subcategory Maximum Points Available Visa Discover MasterCard American Express
Ubiquity of Benefit Which Cards Are Eligible 20% 10% 20% 20% 20%
Sign Up 10% 10% 10% 10% 10%
Purchases Covered Types of Purchases Covered 10% 10% 10% 8% 10%
Length of Original Warranty Exclusion 10% 8% 8% 3% 10%
Rewards Exclusion 5% 5% 5% 5% 5%
Wear and Tear Exclusion 5% 5% 0% 0% 5%
Refurbished Items Exclusion 5% 5% 0% 0% 5%
Length of warranty 20% 14% 14% 18% 14%
Coverage Limit Amount of Coverage 5% 5% 5% 5% 5%
Number of Claims Limitation 5% 0% 2% 5% 2%
Claim Process 5% 5% 5% 5% 5%
Total Score 100% 77% 79% 79% 91%

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Transparency Scoring

 

Maximum Points Visa Discover MasterCard American Express
How easily can one find the info? 3 Points 3 3 1.5 3
How easy it is to read the info? 1 Point 1 1 1 1
How complete are the policies provided? 4 Points 3 4 4 4
How open and transparent is the card network about its policies? 2 Points 2 2 2 2
Total 10 Points 9 10 8.5 10

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Score Justification

 
Visa received an overall score of 77 % and a transparency score of 9 points because:

  • Under the “Which Cards are eligible” category, we subtracted 10% because only Visa Signature cards feature this benefit.
  • Under “Length of Original Warranty Exclusion,” we subtracted 2% because the benefit applies only to items with a manufacturer warranty of 3 years or less.
  • In the “Length of Warranty” category, the network received 14% because the company adds a maximum of 1 year to the warranty and does not offer extended coverage for additional warranties purchased from the manufacturer or retailer.
  • Under “Number of Claims Limitations,” we did not award any points as the maximum benefit of $50,000 is a lifetime limit applied to each account.
  • Transparency score is 9 because, Visa’s online publicly disclosed policy is missing clarifications on whether items purchased with points accrued on the card and refurbished items are eligible for the benefit.

Discover received an overall score of 79% and a transparency score of 10 because:

  • Under “Length of Original Warranty Exclusion,” we subtracted 2% because the benefit applies only to items with a manufacturer warranty of 3 years or less.
  • In the “Wear and Tear Exclusion” category, we did not award any points because the network’s the policy excludes such damage from their coverage.
  • In the “Refurbished Items Exclusion,” no points were awarded because refurbished items are not covered under the benefit.
  • In the “Length of Warranty” category, the network received 14% because the company adds a maximum of 1 year to the warranty and does not offer extended coverage for additional warranties purchased from the manufacturer or retailer.
  • Under the “Number of Claims Limitation” category, we have subtracted 3%, because a customer can make a maximum of $50,000 in claims annually.
  • Discover received a perfect transparency score because they met all of our criteria.

MasterCard received an overall score of 79% and a transparency score of 8.5 because:

  • Under “Types of Purchases Covered,” we have subtracted 2% because the network does not provide coverage for any type of media devices with data stored, which counts as a minor exclusion.
  • Under “Length of Original Warranty Exclusion,” the network’s score is the average score for its two policies; the policy for the Standard, Gold and Platinum cards received a 2% because it applies to items with an original manufacturer warranty of 1 year and the World cards received a 4% because benefit applies to items with an original manufacturer warranty of 2 years.
  • In the “Wear and Tear Exclusion” category, we did not award any points because the network’s the policy excludes such damage from their coverage.
  • In the “Refurbished Items Exclusion,” no points were awarded because refurbished items are not covered under the benefit.
  • Under “Length of Warranty,” the network’s score is the average score for its two policies. The policy for the Standard, Gold and Platinum cards received 16% because the maximum amount of time the original manufacturer warranty can be extended is 1 year, and the policy also provides extension on an extended warranty bought from the manufacturer or retailer and The World cards received 20% because the maximum amount of time the original manufacturer warranty can be extended is greater than 1 year (2 years), and the policy also provides extension on an extended warranty bought from the manufacturer or retailer.
  • MasterCard received a Transparency score of 8.5 because only active cardmembers have access to extended warranty policies online.

American Express received an overall score of 91% and a transparency score of 10 because:

  • In the “Length of Warranty” category, the network received 14% because the company adds a maximum of 1 year to the warranty and does not offer extended coverage for additional warranties purchased from the manufacturer or retailer.
  • Under “Number of Claims Limitation” category, we have subtracted 3% because a customer can make a maximum of $50,000 in claims annually.
  • American Express received a perfect transparency score because they met all of our criteria.

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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. All networks responded to our questions and either confirmed the accuracy of our data or provided corrections (which were then incorporated into the final version of this report).

We scored and ranked the networks based on five general criteria: 1) Ubiquity of the Benefit, 2) Purchases Covered, 3) Length of Warranty, 4) Coverage Limit and 5) Claim Process. In the case of card networks that offer more than one type of extended warranty policy, we scored each of the packages individually and then averaged the scores to obtain an overall rating. The breakdown of the scoring is as follows:

    1. Ubiquity of Benefit – Worth 30% Total
    A. Which Cards Are Eligible? – Worth 20% Total
    • If all cards are eligible = Full points
    • If most cards are eligible= 15% points
    • If just some cards are eligible= 10% points
    • If no cards are eligible = No points

    B. Sign Up – Worth 10% Total

    • If there is no sign up requirement = Full points
    • If there is a onetime sign up requirement = 5% points
    • If each product needs to be registered = No points

     
    2. Purchases Covered – Worth 35% Total
    A. Types of Purchases Covered – Worth 10% Total

    • If no popular category of items (major or minor) are excluded from coverage = Full points
    • If benefit does not apply for a minor category of items = 8% points
    • If benefit does not apply for a major category of items = 5% points
    • If extended warranty does not apply to any purchase = No points

    B. Length of Original Warranty Exclusion – Worth 10% Total

    • If items with original warranty of 4 years or more are covered = Full points
    • If only items with original warranty of 3 years or more (but less than 4) are covered = 8% points
    • If only items with original warranty of 2 years or more (but less than 3) are covered = 4% points
    • If only items with original warranty of 1 year or more (but less than 2) are covered = 2% points
    • If only items with original warranty up to 1 year are covered = No points

    C. Rewards Exclusion – Worth 5% Total

    • If items bought with rewards accrued on the card are covered by the benefit = Full points
    • If items bought with rewards accrued on the card are not covered by the benefit = No points

    D. Wear and Tear Exclusion – Worth 5% Total

    • If normal wear and tear is covered under the policy = Full points
    • If normal wear and tear is not covered under the policy = No points

    E. Refurbished Items Exclusion – Worth 5% Total

    • If refurbished items are covered under the policy = Full points
    • If refurbished items are not covered under the policy = No points

     
    3. Length of Warranty – Worth 20% Total

    • If the maximum amount of time the original warranty can be extended is more than 1 year and there is an extension to an extended warranty bought from a manufacturer or retailer = Full points
    • If the maximum amount of time the original warranty can be extended is more than 1 year but there is no extension to an extended warranty bought from a manufacturer or retailer = 18%
    • If the maximum amount of time the original warranty can be extended is 1 year and there is an extension to an extended warranty bought from a manufacturer or retailer = 16% points
    • If the maximum amount of time the original warranty can be extended is 1 year and there is no extension to an extended warranty bought from a manufacturer or retailer = 14% points
    • If the maximum amount of time an original warranty can be extended is less than 1 year = No points

     
    4. Coverage Limit – Worth 10% Total
    A. Amount of Coverage – Worth 5% Total

    • If the benefit applies to items worth up to $10,000 = Full points
    • If the benefit applies to items worth up to $5,000 = 4% points
    • If the benefit applies to items worth up to $1,000 = No points

    B. Number of Claims Limitation – Worth 5% Total

    • If there is no number of claims limit = Full points
    • If the number of claims limit applies yearly = 2% points
    • If the number of claims limit applies per lifetime of account = No points

     
    5. Claim Process – Worth 5% Total

    • If filing a claim requires only a product receipt, credit card receipt, original warranty, service contract and a repair estimate = Full points
    • If filing a claim requires more than product receipt, credit card receipt, original warranty, service contract and a repair estimate = No points

The network with the most accumulated points received the highest score. The maximum number of points is 100%.

Ubiquity of Benefit and Purchases Covered were 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 opinion of how each network’s extended warranty program compares to an ideal extended warranty. 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.

Network Transparency
How easy it is to obtain complete information about the policy? – Worth 10 Points Total

    1. How easily can one find the info? – Worth 3 points Total
    • Information is prominent on the credit card network’s website = Full points
    • Information is not prominent on the credit card network’s website; or it is prominent but users need to log in to see the full disclosure = 1.5 points
    • Information cannot be easily found on the credit card network’s website – No points

    2. How easy it is to read the info? – Worth 1 Point Total

    • Information is presented in normal size font – 1 point
    • Information is in small size font – No points

    3. How complete are the policies provided? – Worth 4 Points Total

    • Full policy provided – Full points
    • A couple of key points missing from policy – 3 points
    • Several key points missing from policy– 2 points
    • Benefits briefly described – 0.5 points
    • No key details provided – No points

    4. How open and transparent is the card network about its policies? – Worth 2 Points Total

    • Transparent about policies – Full points
    • Not transparent about policies – No points
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