Are Extended Warranties a Good Idea?

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eHow Money Blog


My family recently bought a new-to-us house. Just a few days in, we were surprised to learn that the appliances left behind by the former owners were duds (even though they looked brand new). So while our clothes were sudsing up at the laudromat, we went washing machine shopping.

If you’ve shopped for a new washing machine from a big box hardware store or a new gaming system at an electronic store, chances are, like me, you’ve received the sales pitch for the extended warranty. That pitch will probably include an explanation of how plunking down some extra cash – often a percentage of the purchase price – your new gadget, gizmo or appliance will be covered should it need to be repaired or replaced after the manufacturer’s warranty expires.

Before signing up for this added insurance policy, I suggest weighing four factors.

1. Price – In general, experts suggest skipping an extended warranty on items under $100, especially if you’re buying electronics or anything technology-related. “It doesn’t make economic sense because as soon as you leave the store the item’s value depreciates as much as 50 percent. Save the cost of the extended warranty to invest in a replacement purchase when the time comes,” says Joe Silverman, CEO of New York Computer Help, a technology service business in New York City.

On the flip side, bigger ticket items that cost $1,000 or more might be worth the investment. I learned this lesson when the extended warranty we bought for a washing machine provided a brand new replacement after our washer broke one month after the manufacturer’s warranty expired.

2. Is a manufacturer’s warranty already in place? – Many electronics like smartphones, laptops, tablets and others carry a one-year manufacturer’s warranty, Silverman says. So you might think your purchase is protected. But think again!

A manufacturer’s warranty typically only covers manufacturing defects like faulty wiring, defective parts, etc., according to Jon Abt, co-president of Abt Electronics in suburban Chicago.

Drop your laptop or send your smartphone through the perm press cycle of your washing machine and you’re out of luck with coverage under a manufacturer’s warranty, according to Silverman. That type of damage is covered under the extra or extended warranty offered at the register. Prices depend on the item’s original purchase price, and you may need to get the coverage when you initially buy the item. Dell, for instance, offers CompleteCare laptop coverage that costs about $79 for one year and is only available at the time of original purchase.

3. Who’s providing the coverage? – Even though you purchase the extended warranty at the store, the retailer often isn’t the one providing the coverage. These middlemen are simply selling the warranty policy on behalf of a third party. That means your flat screen might need to be sent across town, or the country, to be repaired.

“If you want an extended warranty cut out the middleman and deal directly with the manufacturer whenever possible and purchase additional coverage through the manufacturer,” says Silverman. Or stick to in-store repair centers like Best Buy’s Geek Squad.

4. What are my alternatives? – The cash register isn’t the only place to purchase an extended warranty. This coverage is also available online at ProtectYourBubble, ElectronicWarranty.com and SquareTrade.com.

Coverage offered online depends on the type of item covered, how much it’s worth and how long the warranty lasts. For instance, SquareTrade.com would charge about $125 for a 2-year warranty on most smartphones. Meanwhile, a three-year warranty for a laptop valued between $1000 and $1,499 would run 299.99.

No matter what type of extended warranty you buy, remember to:

• Make sure your coverage allows claims filed and tracked online and the proof of purchase for an item stored online.

• Read customers’ reviews of any extended warranty you’re considering.

• Ask whether the warranty company has deadlines for how soon a covered item must be repaired or replaced.

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