What is a warranty in insurance?

• A. An absolutely true statement on which the policy's validity depends; breach can void the policy
• B. A statement believed to be true with some uncertainty
• C. A provision about premium adjustments
• D. A negotiation clause between insurer and insured

Answer: (A)

In insurance, a warranty is a promise by the insured that a stated fact is true, and the policy’s validity rests on that truth. Because the insurer is relying on this guarantee when it issues the policy, breaching a warranty can allow the insurer to void the contract or deny coverage, even if the breach didn’t cause the loss. This makes warranties much stricter than ordinary statements of fact.

A statement believed to be true but not guaranteed describes a representation, which the insurer uses to assess risk but does not automatically void the policy if later found untrue. Provisions about premium adjustments deal with price changes, not the truth of a risk-related condition. A negotiation clause covers how terms were discussed or agreed upon, not a risk guarantee. A practical example of a warranty is requiring the insured to install and maintain a fire alarm; failing to do so breaches the warranty and can affect coverage.