Are Extended Warranties Worth It?

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Retailers have been promoting extended warranties on both large and small items more frequently in recent years because the warranties are very profitable.  The trend leaves many consumers confused as to whether or not they should purchase an extended warranty when they buy a product.  Although the decision involves personal preferences, there are some factors to consider. 

Many credit card issuers will double a manufacturer’s warranty if the product is purchased using the card. Check with your card issuer to determine if this type of coverage is available for the particular card that you have.

Research the quality of the product, either online or by reading Consumer Reports magazine at the local library. If the product does have some problems, but you are determined to buy it, then consider purchasing the extended warranty.  If the experience of other consumers has been favorable, then you may want to take a pass on the warranty.  It should be noted that research from Consumer Reports has shown that products are most likely to break within the manufacturer’s warranty period or years later after the extended warranty would expire.

Think about the cost of the warranty relative to the cost of the product. Consider the price of the warranty as a percentage of the purchase price of the item.  Is it worth another 10% or 20%?  Generally, 30% is considered too much to pay.

Evaluate how much wear and tear the item will experience.  Some people are just harder on appliances and electronics than others, thus are more prone to having items break.  Also, some products such as laptops and cellphones are more delicate.  Car tires also suffer abuse over the years with road conditions and driving habits.

Take your time in making a decision and tune out any pressure from the salesperson.  Review the warranty and determine if it is comprehensive or contains numerous exclusions. No one wants to hear “that’s not covered” when a claim is made.  Determine if service is convenient or the item needs to be shipped to a service location in another state costing postage and insurance.  Make sure that in home service is provided for larger items.  Also determine if the two or three year extended warranty period overlaps the one year manufacturer’s warranty (i.e. you are paying for two or three years, but really getting only one or two years of additional coverage).  This is often the case with extended warranties.  Determine the time frame in which the extended warranty can be cancelled if you change your mind.

The decision may not have to be made at the time of sale, especially if the item is being delivered at a later date.  Additionally, some manufacturers will again offer the option to purchase an extended warranty on a large appliance when the original warranty expires.  Doing this may cost a bit more if the price is higher, but allows the consumer to take a wait and see approach.