Why you probably don't need that extended warranty

A study by ConsumerReports.org suggests that non-savvy consumers will fork out a total of $1.6 billion on warranties this year. Newsflash - they're not worth the money!

A study by ConsumerReports.org suggests that non-savvy consumers will fork out a total of $1.6 billion on warranties this year.  Newsflash - they're not worth the money!

Extended warranties and service plans are a great gig for the retailer.  When they sell you a TV for $500 they make around $10 on that sale, but when they sell a $100 warranty, they get to keep $50.  When you look at the math, it's pretty easy to see why the salespeople push the extended warranties so hard on the consumer (personally, I always find this switch in sales pitch quite amusing - before you buy the item it's described as robust and reliable, but once you're committed to buying and the issue of a service plan comes around, all of a sudden the item in question is fragile and unreliable!). 

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But why are extended warranties such a bad idea?  Surely they protect the consumer from additional cost and downtime?  Well, think about it:

  • How likely is an item to fail within the warranty period? 
  • How much are you saving if the item does break?
  • What's covered by the warranty?  What's not?

 No matter how you cut it, a warranty like this is stacked against the consumer. 

It's worth pointing out that the report does recommend extended warranties for two items.  These are:

  • Rear-projection microdisplay TV
    It seems that these sets are three times more likely to need repairing that other TVs, and repair costs are quite high
  • Apple computers
    Because you only get 90 day free telephone tech support (after that it's $49 a call)

Both of these scenarios make it worth considering the additional cost of an extended warranty.  However, don't walk blindly into an extended warranty.  Make sure that you are absolutely clear as to what you are getting for your money - don't rely on anything said to you by a salesperson, you need to see a written copy of the terms and conditions.  In my experience salespeople very often distort reality when it comes to extended warranty coverage. (Who am I kidding? They distort reality on a regular basis.)

What have your experiences with extended warranties been?  Has an extended warranty or service plan ever saved you a lot of cash or have they always been money down the drain? Or was it worth it for the peace of mind?


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