Insured contracts vs Non-insured service contracts

According to the latest Association of British Insurer's Consumer Guide for Motor Warranties here is the distinction between Insurance Contracts and Non-insured Service contracts:

What complaint and compensation rights do I have?

It is very important that you check your contract documentation to make sure you know your complaint and compensation rights, as they differ depending on which type of warranty you buy. There are two types of extended warranty:

  • Insurance contracts, and
  • (Non-insured) Service contracts

Insurance contracts:

If your contract is an insurance contract, the insurer named in the policy contract document must be authorised by the Prudential Regulation Authority (PRA) or by another European regulator. You will have the following rights if you buy insurance from an insurer authorised by the PRA or from the UK branch of an insurer authorised by another European regulator:

  • The Financial Ombudsman Service (FOS): If you have complained to your insurer, and are not satisfied with the way they have handled the complaint, you can contact the FOS. The FOS is the official independent expert in settling certain complaints between customers and businesses who provide financial services. It is a free service for customers to use, and its final rulings if accepted by the customer are binding on financial services firms.
  • The Financial Services Compensation Scheme (FSCS): If the insurance company goes bankrupt, up to 90% of any claim you make can still be covered.

(Non-insured) Service contracts:

Service contracts have to comply with a variety of other consumer protection standards and regulations, but you will not have the protection of the FOS and FSCS. In order to protect their customers in the event of a bankruptcy, some warranty providers set aside funds to cover their non-insured schemes. However, this may not always be the case, so it is important to check your contract document.

We believe these definitions display why motorists need an insured contract when taking out a warranty. To this end every Warranty Direct policy is underwritten by a PRA and FCA regulated insurer. All customers can take complaints to the Financial Ombudsman Service and are covered by the Financial Services Compensation Scheme.

The full Consumer Guide for Motor Warranties can be found at


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