In retail business, a warranty (or "extended warranty") commonly refers to a guarantee of the reliability of a product under conditions of ordinary use. It is called "extended" warranty because it covers defects that could arise some time after the date of sale. Should the product malfunction within a stipulated amount of time after the purchase, the manufacturer or distributor is typically required to provide the customer with a replacement, repair, or refund. Such warranties usually do not cover "acts of God", owner abuse, malicious destruction, commercial use, or anything, for that matter, outside of a mechanical failure incurred with normal personal usage. Most warranties exclude parts that normally wear out, and supplies that must be periodically replaced as they are normally used up (e.g., tires and lubrication on a vehicle). An extended warranty may be included in the purchase price, or optionally extended for an additional fee, and may have yearly extensions as well as ambiguous terms like "lifetimes" of the product.

* A manufacturer or distributor may be required to carry reserve funds on its financial balance sheet to cover potential services or refunds that may arise for any products still covered "under warranty".

Third-party warranty providers offer optional "extended warranty" agreements for a multitude of products, considered a contract of insurance for that product. Third parties are sold through a range of smaller, self-insured companies as well as larger, well known store chains, such as Best Buy and Circuit City. As with other types of insurance, the companies are gambling that the products will be reliable, that the warranty will be forgotten, or that any claims made can be handled inexpensively. Some third party companies provide their own support such as JTF Business Systems; these companies will remove the defective part and send it back to the manufacturer for replacement.

Extended warranties are not usually provided through the manufacturer but are extended through independent administrators. In some circumstances it may work to the consumer's benefit having an assurance to the product from a company outside of place of purchase and/or service. For instance, when an auto warranty is provided through a car dealership, it's usually a sub-contracted warranty (often from the retailer with the lowest offer), where vehicle repairs are negotiated to a lower rate, often compromising the service, labor and parts to a lower standard. Many times these types of warranties require an unexpected out-of-pocket expense at the time of repair, such as: -unexpected services provided outside of the warranty terms -uncovered parts and labor rates -paying the full balance while a reimbursement is arranged through dealership/warranty claims offices. Some mechanics and dealer service centers might put off, or defer the needed repair until the dealership's warranty has expired so that their (in-house) warranty will no longer be bound to cover the cost of repair, or so that the ordinary (higher) shop rate will apply.

* Most U.S. consumers with a combined total asset value of $4800+ (standard electronics, luxury electronics, antiques and collectibles, furnishings, automobile, home, etc.) or consumers averaging a combined household income of less than $122,000 per year, have 86% more likeliness of increasing the market value of their product, home, or vehicle, and are likely to triple their savings (cost of warranty extension vs. cost of proper service and repair on property exceeding $4800 in value) when owning a federally bonded and insured warranty. ~drp.report2007