Are Extended Warranties Worth It?

You can buy an extended warranty on almost anything today. (I just got one when I bought my elliptical because it guaranteed me a working machine for three years.) But are they worth it?

Consumer Reports isn't sure what to think. First of all, they say that an extended warranty usually isn't worth it. Their thoughts:

For years, Consumer Reports has cautioned against buying this costly coverage. Survey data from thousands of readers have shown that, generally, extended warranties cost not much less than the average repair. That’s if you need a repair at all. As you can see in Product repair rates, many electronics products are unlikely to need repairs within the first three years.

When it comes to plasma and liquid-crystal display (LCD) TVs, however, the decision is more difficult. Preliminary data from our user surveys show no unusual rate of repair for flat screen plasma and LCD TVs in the first year, but long-term reliability is still unknown.

Before you say yes to an extended warranty on any product, see whether your credit card provides similar coverage. Such plans, most often found on gold and platinum cards, typically lengthen the original manufacturer’s warranty by up to one year. If you use a MasterCard, look in the fine print for the words “extended warranty.” Visa calls its program Warranty Manager Service.

Consumer Reports then backs up their findings with a handy product repair rate table.

But the magazine hedges a bit in another piece that says sometimes extended warranties are good deals:

But sometimes an extended warranty may make sense. If you're buying a treadmill or an elliptical trainer with a standard warranty of less than a year on parts and labor, you should consider an extended warranty, which costs around $70 to more than $100 for two to three years of coverage. That's not bad, considering that a service call costs $75 to $100 before you pay for parts.

You might consider an extended warranty on a laptop computer. Laptops are expensive, fragile, and hard to repair. And the parts are made to fit within the manufacturer's unique case design. For that reason, you should buy the warranty from the manufacturer, not from the retailer. Also, with a manufacturer's warranty, you continue to enjoy access to free tech support.

For another take on the subject, here are some thoughts from MSN:

Whether an extended warranty is a wise purchase depends on estimates--or guesses--on your part. These tips can help you make up your mind:

• Read the terms before you buy
• Determine the coverage term
• Beware shipping charges
• Consider accidental damage coverage
• Know the cancellation terms
• Look for extras
• Investigate the product's reliability
• Weigh plan cost vs. product cost
• Shop around
• Check your credit card terms

It's really not clear one way or the other. We usually do NOT get the extended warranty unless there's a compelling reason to do so. In most cases, manufacturers make their products good enough and the products have a basic warranty from them.

Do any of you have any guidelines you'd like to share with the rest of us? What "rules" do you use to decide whether or not to buy the extended warranty?

Comments

[Her]

I never buy the extended warranty based on the principle of the matter. I remember when warranties were free and represented the company's good faith promise to deliver a quality product. In the last few years the general quality of most products has plummeted. I don't feel I should have to pay extra for an inferior product.

[Nikita]

Extended warranty is basically insurance against having to pay repair costs. The person selling you this insurance has to make money on it (otherwise they wouldn't sell it), so on average, they take in more money in insurance premiums than they pay out in warranty repair costs. All the consumer reports studies do is confirm this economic fact. So if the average service call for your treadmill costs $150, and you pay $75 for a 2-year extended warranty, the odds are less than 1 in 2 that you will ever need to use the warranty.

I think the main argument for getting an extended warranty is that you might not be able to afford the repairs. If your laptop goes up in smoke a week after its warranty expires, would you be able to pay for a replacement? If not, the extended warranty may be for you. But in the long run, having an emergency fund to take care of these kind of unexpected repairs is better financially than paying someone else for laptop insurance.

[chilliOH]

A few years back my husband bought me an expensive computer monitor and got the extended warranty. Believe it or not, within one week of the expiration of the extension my monitor stopped working. I called the warranty company, they sent me a label to send the monitor back, and they sent me a check for the entire purchase price. I couldn't believe it - something that finally worked as advertised!

[Stock Mama]

The mention of an eliptical trainer hit home. We bought an eliptical trainer from Sears and bought a five-year extended warranty on it. This turned out to be a good thing, because the shaft on which the flywheel turns broke -- twice -- and the whole machine had to be replaced -- twice. We saved beaucoup bucks on that deal. The warranty also includes having a repair person come out once a year and do a tune-up on the machine. Thank you, Sears!

I reckon the reason they can still make money on a warranty is that most folks who buy a strider with the best of intentions end up letting the thing collect dust after a couple of weeks. Ours, however, gets frequent use when the weather doesn't permit walking.

[Jake]

So how about jewelry? You go to these places and buy such an expensive peice of jewelery how can you pass up the warranty? Plus on the white gold they tell you it will turn yellow in a few years and if you buy the warranty they will replate it for you. Ugh... Such a hard decision that I am still throwing around..

[Tim MMF]

Good advice. I've never purchased an extended warranty. Luckily, I've never had to regret that.

[makapangyarihan]

Although warranties should always come with any product being sold, I believe that manufacturers shouldn't have to offer "extended warranties". There's just too many factors involved that can make any product break down.

[Peter]

I've worked in Customer Service for over 5 years and I've seen products fail within a couple of days of purchase as well as a little over 30 days. Most businesses only offer a 14 or 30 day exchange/return policy. They offer that extended warranty to assure that you won't have to deal with the issues with contacting the manufacture and their outrageous prices. I believe in warranties not because I sell them but because of things I've witness. You are taking a risk when you purchase a high priced item or an item that is make with complex parts that can cost a lot of money. Do some research on manufactures and see how much they charge when you have a manufacture defect within the first year and you will regret not getting that extended warranty through that company.

[Alamaric]

Simply put EVERYTHING you buy seems to have a warranty on it or the place offers a Warrenty for extra money. My philosophy is very simple, Be your own insurance carrier. If I paid for the insurance on everything they asked me to, I would be broke and they would be rich. Take a small bit of advie. I have a separate online bank account in which I saved 2k in. this account sits there and gains interest. It is my warranty account. When something breaks, I take the money out of that account and pay for it to be fixed or replaced. This way I get to choose who fixes and if I need a replacement. I then replenish the account after I use gradually again until it reaches 2k. If everyone did this there would be no problems. One day when I bought 3k LCD projection 5 years ago adn they wanted $450 for a warranty, I thought, why not save that in my own account and add to it and if something happens I can either replace or fix. Well I have no regret and after 5 years of having this account I only EVER took 200 dollars out of to replace the projection light on the TV, which still is sitting in the box waiting for the orginal to fail. So overall, I have saved all that money and have never once replaced anything. (Knock on wood).