You’ve just purchased a new computer, your first car, or a refrigerator for your newly renovated kitchen. As the transaction wraps up, the salesperson asks if you’d like to pay extra for an extended warranty, also known as a service contract. The big question remains: Should you spend the extra money? Surprisingly, the answer is often "no."
Understanding Extended Warranties
Extended warranties or service contracts provide repair or maintenance services for a set number of years beyond the standard warranty. Unlike standard warranties, which are included in the product's purchase price, extended warranties require an additional fee. For example, a service contract on a car might cover repairs for an additional five years after the standard warranty expires. Similarly, a contract for a furnace might offer coverage for eight years after the original warranty ends.
While this extra protection sounds like a smart financial move—given the high costs of car repairs or appliance fixes—it’s important to evaluate several key factors before deciding if it’s worth the investment.
Assessing the Existing Warranty
Before considering an extended warranty, review the standard warranty that comes with your product. If the included warranty already offers long-term protection—such as a five-year warranty on a new oven—you may not need additional coverage. Standard warranties often provide adequate protection for the product’s expected lifespan.
Evaluating Costs vs. Benefits
Extended warranties can be expensive. To determine their value, consider how likely it is that your product will require repairs during the coverage period. Consumer reviews and reliability reports can help you assess whether the product is prone to issues. For instance, a reliable refrigerator model with minimal repair complaints might not justify the cost of extra coverage.
No one can predict accidents or unforeseen malfunctions, but careful research can provide insights into the likelihood of repair needs. If the chances of repairs are slim, skipping the extended warranty may be a better financial decision.
Scrutinizing the Fine Print
Carefully review the terms of the extended warranty before purchasing. Many contracts include restrictions, such as:
- Limited coverage for certain repairs or maintenance.
- Exclusions for labor costs.
- Denial of coverage if maintenance guidelines aren’t followed.
- Coverage restricted to specific parts of the product.
Retailers and manufacturers design these contracts to maximize profits, often limiting the actual benefits provided to customers.
Claims Handling: Know What to Expect
Understand who will handle your warranty claims. In some cases, the retailer will take care of repairs, while in others, you may need to ship the product to the manufacturer. Shipping items for repair can significantly delay their return, adding inconvenience to the process.
Beware of Telemarketing Scams
The Federal Trade Commission (FTC) warns consumers to be cautious of telemarketing calls offering extended warranties. Often, these callers are not affiliated with the retailer or manufacturer of the product. The warranties they sell are typically less reliable and offer even fewer benefits than those from well-known retailers or manufacturers.
Expert Advice: Skip the Extended Warranty
Consumer advocates frequently recommend against purchasing extended warranties. The reason? Most consumers don’t use them often enough to justify the cost. Instead, disciplined savers can create a self-funded repair account. By setting aside the money you would have spent on an extended warranty, you can handle unexpected repair costs for items like refrigerators, laptops, or washing machines without incurring additional expenses.
Save Your Money
The debate over extended warranties continues, but the evidence remains consistent. Most consumers are better off skipping these contracts and opting to save the money instead. With careful research, a good understanding of your product's standard warranty, and a savings mindset, you can confidently manage repair needs without spending extra on extended warranties.