Abstract: A system and method for determining the optimum price that a service provider should charge to customers of at least a partially refundable extended-product warranty to optimize profits generated from providing such warranties. In one aspect of the present invention the customer may elect to purchase warranty coverage when the product is new and cancel warranty coverage at any time thereafter, which election is based in part on the customer's expected discounted net utility from his coverage decisions. In another aspect of the present invention, the customer is allowed to make dynamic repair or replacement decisions in each period based on the product's failure status or on other criteria. In one embodiment, the customer can be afforded warranty coverage flexibility in terms of his ability to turn coverage off whenever desired and to obtain a partial refund of the warranty premium.