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A Brief Guide to Extended Warranties

The benefit they promise may not be worth the price

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BEN MOUNSEY-WOOD

I always feel a tinge of uneasiness when turning down an offer to buy an extended warranty. We’ve all experienced the agony of a product failure and the defeat of an expensive repair bill, and extended warranties seem to offer peace of mind.

Nowadays they’re hawked all over the internet, not just at places like electronics stores and auto dealerships. Amazon, Best Buy, Target, Walmart and other websites sell them as purchase add-ons for even cheap stuff like $30 hair trimmers. The cost for these policies can range from a few bucks to thousands.

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But does it really pay to buy an extended warranty? I had many questions, so I talked to experts and looked for answers. After doing that research, I came to a decision about buying extended warranties — but you’ll have to read on to find out.

What is an extended warranty?

A warranty is simply a promise that the company will stand behind its product, according to the Federal Trade Commission (FTC). So if, for example, your vacuum cleaner breaks within the warranty period, the company is committed to repairing or replacing it. Most products come with a free manufacturer warranty that covers a modest length of time, often a year or two. An extended warranty — also known as a protection plan or service contract — provides similar guarantees for even more years. These policies cost extra, may have different fine print than a manufacturer warranty and often are sold by a third party rather than the product’s manufacturer.

Why are they being offered so frequently?

Simple: They’re a huge moneymaker. According to the nonprofit Consumers’ Checkbook, stores typically pocket 50 to 70 percent of the cost of warranties, “a profit margin that’s far better than for most products they offer.” Why are they so profitable? A University of Pennsylvania Wharton School of Business study found that consumers overestimate the likelihood of products breaking when covered by an extended warranty. In other words, if people knew the odds that they’d ever need to use these insurance policies, they’d never buy them.

Are there alternatives to a purchased extended warranty?

Yes, very often, if you use plastic. Most major card issuers provide extended warranty coverage on purchases made with at least some of their cards; check your card agreement for details, especially exclusions. Many Chase cards, for example, will extend by one year the terms of a manufacturer’s warranty on what you’ve bought — but only on warranties of three years or less, and not for cars, medical equipment or certain other product categories. (A recent WalletHub study found that Discover and Wells Fargo were the only two major credit card companies that don’t offer them on any of their cards.)

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Another way to get free extended warranty coverage is to shop at Costco, which provides extra protection on TVs, computers, appliances and some other products. Finally, most retailers have at least a 30-day return period, independent of any warranty.

How do I assess whether to buy one?

First, do not rely solely on a salesperson’s description. Ask for a copy of the policy and make clear that you’ll need to read it before arriving at a decision. Then study it carefully, along with the manufacturer’s warranty and your credit card’s protection plan. Look for duplicate coverage, exclusions, deductibles and claim requirements such as having to ship the product to a repair shop.

If you can’t be bothered or the fine print is too confusing (a 2018 survey showed that more than half of consumers didn’t understand the terms of automotive warranties), think twice. USA Today tech columnist Kim Komando says the standard manufacturer warranty on most products is probably all you need, since most defects pop up pretty quickly. It also doesn’t pay, she says, to buy policies for inexpensive items that can be replaced easily, like that $30 trimmer.

Komando has an interesting strategy to consider: Rather than spending money on a warranty, apply those dollars to a more reliable brand, perhaps, or buy protective cases for your goods and treat them right. “Make sure that TV has plenty of air flow and your router isn’t sitting on a pile of dust bunnies,” Komando says. Or regularly set aside funds in a bank account to have cash for repairs, says George Kamel, cohost of The Ramsey Show podcast. The only time Komando recommends an extended warranty on electronics is if you’re super unlucky with smartphones. Just make sure you’re signing up for the right coverage, since smartphone plans can have deductibles up to $200.

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Should I get an extended warranty for my new car?

It might make sense if you’re buying a model that’s unreliable or expensive to repair. But why do that? You’re better off checking reliability ratings and skipping vehicles that are prone to big repair bills, according to Consumer Reports. Also, take good care of your vehicle by following the maintenance schedule in your manual. If you decide to buy an extended warranty for your car, Consumer Reports and other consumer experts recommend sticking with policies sold by a reliable vendor such as an automaker or dealer. But watch out for sneaky car salespeople who add them onto your bill without your permission, warns the FTC, and never let anyone pressure you into buying one before you’ve had time to review it.

Any last red flags?

If the warranty is being marketed by aggressive telemarketers or via texts or emails, steer clear. The FTC, which warns that many of those calls are not even legal, says you’ll leave yourself open to high-pressure sales tactics: “The marketer might try to get your personal and financial information, and maybe even a first payment, before they tell you about the contract.” Many of these warranty offers are just “flat-out scams,” reports the Michigan attorney general’s office.

After weighing all the evidence, I decided to forgo all extended warranties in the future. I can live with a little risk, but you should decide for yourself. ​

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