What is the financial backing required for a dealer's uninsured extended warranty?

The financial backing required for a dealer's uninsured extended warranty is an irrevocable letter of credit for $250,000. This means that dealers must secure a financial instrument that guarantees their obligation to honor claims made under the warranty. An irrevocable letter of credit is a commitment from a bank or financial institution that provides assurance to consumers and protects them financially in the event the dealer cannot meet warranty obligations.

This requirement is crucial because it ensures that consumers have a level of security when purchasing extended warranties from dealers, particularly when those warranties are not insured. The amount specified is designed to cover potential liabilities that may arise from warranty claims, thus ensuring that there are sufficient funds to address any claims that may come from warranty holders.

The other options represent different types of financial guarantees that may not be specifically tailored to the purpose of backing an uninsured extended warranty. Each of those alternatives typically serves different functions or levels of risk management, but only the irrevocable letter of credit in this context meets the regulatory requirements for the specific financial backing for uninsured warranties.