Like most goods and services, extended warranty policies often come with the option of getting refunds.
However, extended warranties — especially automobile extended warranties — are unique entities, and as such, have unique characteristics about when and how refunds are available.
First, let’s consider how buying a warranty or insurance works. The losses of the few are paid by the many. This explains why no other kind of insurance product in Canada offers a refund after it expires— not home insurance, not life insurance, not car insurance. If your warranty is an insurance policy and you need to cancel well before it expires, you will be able to get a portion refunded. If it’s a service contract, you won’t.
But why are many automobile extended warranties eligible for “no claims bonus” refunds once they expire? Truth be told, the deck is stacked in favour of the warranty provider — let’s look at why.
Exclusions and eligibility
As with any and all insurance policies, it’s always important to read the fine print for exclusions and eligibility. The last thing you want is to think you’re still covered, and make decisions based on that assumption, only to later discover that you were wrong.
For example, many vehicle warranty policies have kilometer caps for refund eligibility. Once a kilometer threshold has been crossed, there goes your chance of getting a refund.
Claims erase your right to a refund
This one might seem obvious, but some people still miss it. For most policies, any time you make a claim it waives your chance to collect a refund at a later date. Why? Because if an insurance company has already paid you money for a claim then your premium is considered to have been used up. Warranties often add a “no claims bonus” hoping it will deter you from making a claim at all. Will you decide not to make that $500 claim hoping to get a $1500 refund? What about the next time a breakdown happens and you didn’t claim the first one?
Check the timeframe limits
All policies with refund options at expiry have a timeframe where the request has to be made. For example, 30 days after the policy has expired. Some companies will offer you something back if you miss this deadline, but not the full refund amount that you would have been entitled to otherwise.
How much refund you’re entitled to often depends on how much of your policy has lapsed. For example, most insurance policies offer refunds on a “pro-rata” basis. The website Insuranceopedia gives a good example of how this works:
“A policyholder purchases a one-year policy for $1,000 but cancels it after six months. In a pro-rate cancellation, they would receive a refund of $500, which is equivalent to the remaining six months of coverage they forfeited.”
Service contract warranties don’t offer this feature.
You might have to commit to the car if you want a refund
According to a recent article by Autotrader, the average length of time a driver keeps a new vehicle is 71.4 months or roughly six years.
This is important to remember because many policies require you to keep your vehicle — and keep it safe — for the full term in order to be eligible for a refund. That means no sales or transfers, nor can the vehicle be written off. These kinds of requirements are red flags, as it suggests the company isn’t actually serious about refunding premiums — they fully expect you to lose your eligibility before the date it can become active.
If you have questions about how Obvi’s refunds work you can always contact us to connect with an agent.