Consumer Tips

Warranties (Extended)

If you are planning to buy a new automobile, home appliance, or electronic device, there's a good chance that the company will offer to sell you an extended warranty. An extended warranty is intended to protect you if the product breaks after the original warranty expires.

There are two basic kinds of extended warranties:

1. The manufacturer of the product extends the original warranty for an extra charge.

2. A warranty firm provides third-party extended warranty coverage for future repair costs. It is important to note that if you purchase a third-party extended warranty and the company goes out of business your warranty may no longer be valid.

When purchasing an extended warranty, ask the following:

1. Who is providing the extended warranty? Is it the seller, manufacturer, or a third party?

2. What are the terms of the extended warranty? Is it simply an extension of the manufacturer's original warranty or are there any further limitations and/or restrictions?

3. Consider that you are prepaying for repair services which do not take effect until after the original warranty expires, which is essentially years from now. Recognize the likelihood of utilizing the repair services, the length of time you intend to keep the item, and the value of the item at that time.

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Extended Warranty vs. Service Contract: What's the Difference?

Salespeople will often use the terms extended warranty and service contract interchangeably, but there is a distinction.

An extended warranty is typically designed to protect you against any manufacturing defects beyond the life of the manufacturer's express warranty.

A service contract, however, provides varying degrees of maintenance and upkeep as defined in the contract.

An extended warranty offers protection if your computer inexplicably goes on the fritz; a service contract might protect you if you spill coffee all over your keyboard, but, then again, it might not.


Read the Fine Print

As with any contract, you want to read the fine print of both the manufacturer's express warranty and the extended policy.

Usually you can even take the policy home to read it closely and sleep on the decision - and many extended warranties and service contracts don't have to be purchased at the point of sale and can be purchased at a later date up to a specified period of time.


Know What You're Really Getting

Make sure you don't duplicate coverage. Some protection may already be in place for a specified period of time under what is known as "implied warranty". Also, if you pay with a credit card, you may be eligible for an extended warranty through your credit card company that might be sufficient.


Shop Around

Different retailers will offer different policies, so if buying an extended warranty or service contract is important to you, visit several retailers and find out which offers the best value.


Consider the Cost of the Product

When considering an extended warranty or service plan, it's important to consider the cost ratio of the policy and the product. It isn't really worth it to pay $50 for a policy to cover a $100 DVD player.

You should also consider and calculate what it would cost for average repairs over the specified time period of the contract and compare it to the total cost of the service contract. If the product has a good track record for reliability, then the service contract could end up costing more money.


Bottom Line: Are They Worth It?

Considering how policies can vary, only you can decide if an extended warranty or service contract is worth the cost. Granted, extended warranties and service contracts are potential money-makers for a retailer, which means that most consumers don't cash in on the coverage. With some products, however, such as computers and TVs, extended warranties are a good safety net and the extra coverage can provide you with peace of mind.