Extended Service Plans and Warranties

So you decided to buy that 48 inch high-definition television that you’ve been waiting for ever since you didn’t get it last Christmas. You head towards the checkout line when the salesperson suddenly wheels around and tells you that you shouldn’t consider getting one of these without an extended warranty. Now what do you do?

We are presented with these extended warranties and service plans on everything from the smallest electronics to the shiny new (or used) automobiles we purchase. They come in the form of an up-sell to the purchase process or a solicitation by mail or email after the transaction.

Is It Worth It?
Is any of this protection worth the expense, or would it be better to put that money aside and pay for the repair should it be necessary when it occurs?

Nearly every product comes with its own warranty. These typically last from 30 days to 12 months. Some credit card companies will extend the manufacturer’s warranty if you use their cards. Read the information that came with the card or call your card issuer.

If you have an annual service plan for the appliances in your home, you should consider that you may already be covered for any repairs on those items. An extended warranty might be redundant on appliances like washers, dryers, dishwashers, or microwaves if your annual service plan includes coverage for these items.

Most consumer organizations, like the American Homeowners Foundation, Consumers Union and Consumer Reports, have stated that extended warranties are not typically worth the cost. They have become popular because they are so lucrative for the retailer and the independent companies that offer them after the sale is completed.

Do I Need It?
Consider that, historically, products seldom break within the window that the extended warranty period covers after the standard warranty has expired. If you factor in that electronics and computers become obsolete so quickly, and that the item you buy today will probably be outdated in only a few years, the money spent on an extended warranty could probably be better utilized if saved for an upgrade when it fails.

Many of the consumer organizations, including Consumer Reports, have found that when electronics and appliances do break, the repairs, on average, cost about the same as an extended warranty.

Consumer Reports published the following repair rates for 3- to 4-year-old products

Source: Consumer Reports National Research Center, 2006 Product Reliability Survey

Is My Automobile Manufacturer’s Warranty Enough?
As for automobile extended warranties, there are two common types of extended warranties: those backed by the car's manufacturer and those offered by independent companies. The latter are known as aftermarket warranties.

An extended service contract backed by an auto manufacturer is probably your safest bet. These contracts encompass a wide range of repairs and services. The repairs can be completed at any authorized dealership.

An extended warranty from an independent company could cost half as much as an extended service contract from a manufacturer, but the quality of this kind of warranty varies widely from company to company.

Determining if it is worthwhile buying such protection depends on a number of factors:

• Do you plan to keep the car long after the manufacturer’s warranty expires?
• Do you drive many more miles than the average owner, thus shortening the time for the manufacturer’s warranty?
• Can you absorb the cost of surprise expenses, especially costly auto repairs?
• How reliable is the car you are buying?

If after you consider the above you feel that the warranty that came with your vehicle does not satisfy your needs or concerns, then an extended warranty may be right for you. Shop carefully and negotiate the price.

Negotiate a Good Deal
Nothing is written in stone. Many plans have different options to make them affordable. There may be different levels of coverage and there may be deductibles that can reduce the initial cost of an extended warranty or service plan.

And don’t forget, you can buy an extended warranty after the sale, be it a week, a month, even years after you purchase a new car.  However, the longer you wait, the higher the cost for the protection.