To make a profit, warranty companies must make more from warranty payments than they pay in operating costs, which includes the costs of sales and marketing, corporate administration, and paying claims.
In order to do this, most warranty companies charge at least two times more money than they likely amount they will pay for in repairs. Other methods that extended warranty companies may use to make a profit include using aggressive marketing to generate more sales than claims that must be paid out and sourcing parts and labor for lower-than-market prices.