This past weekend I was in my local appliance store buying a television. When checking out I was asked the question that people are always asked in this situation, but it’s a question that most people don’t typically know how to answer:
Sir (Madame), would you like to buy an extended warranty?
We all know the drill from there. The salesman will tell you that the manufacturers limited warranty is good for one year parts and labor, but that most problems surface after that. You can buy a one, two or three year extended warranty that covers everything including your first born child, and they will come to your house to do the repairs.
Being somewhat cynical I have the feeling that these warranties are an extremely large profit center for the store. But that doesn’t necessarily make them always bad to buy. What will happen if I buy one and the store or chain goes out of business? I know that I had that experience with Comp USA who fortunately used an outside firm so that my warranty was still honored. But what if they don’t? So many thoughts are going through my mind, but the salesman is still waiting for an answer: Yes or No.
WHAT SHOULD I DO?
The question becomes whether these warranties are really worth the money, and on which products should you consider purchasing one of them? These contracts are sold on items as small as a toaster and as large as a car, so what is the general rule of thumb?
The truth is that there is no correct answer to the question. Simplistically, if/when you go to replace the product in a few years and you haven’t needed the warranty, then you shouldn’t have purchased the warranty. If you have used the warranty and it saved you money over and above what you paid for the warranty, then it was a good buy. Similarly, if something breaks and you don’t have the warranty, well, you get the idea.
Here are a few guidelines.
Price of the warranty versus the price of the product – If you are buying a toaster for $50, and the extended warranty is $20; it’s not worth the price. If after two years the heating coils break you will most likely want to buy a new one rather than fix the old one. Further, toasters are typically not fragile appliances. On the other hand, if you are purchasing a laptop computer for $1,800 and the extended warranty is $150, the warranty may in fact be worth buying. A computer is a piece of equipment that has many parts that can cease working for one reason or another with a high replacement cost. Rather than having to go out and either do the repairs yourself or buy a new computer, the $150 price could be worth it.
Cost of replacing versus fixing – Similar to number one above, if you can afford to replace or fix the product were it to break, it will give you the option to weigh the pros and cons of the warranty based on its price and the products historical reliability. On the other hand, if you are purchasing a used car and knew that it would break down and the expense of repairs would be a problem, then you would most likely have no choice but to buy the warranty.
Your credit card may already take care of it – Everyone talks about the question surrounding optional insurance at the rental car counter if you use a certain credit card. The same holds true with purchases that include a manufacturers warranty. Check with the issuer to find out if using the card provides extra coverage, and if it does what that extra coverage is. This feature can save you a good deal of money.
Get the specifics of the coverage – Find out exactly what the warranty will cover and won’t cover. Get in writing if it covers parts only, parts and labor, accidental damage, etc. Nothing is worse than assuming you are covered only to find out that you aren’t. If the coverage is weak, then the warranty may not be worth the money.
The more you know – If you are purchasing a product that you have purchased before and know the quality and the length of time it should last, then you may already know the value of an extended warranty. If someone you know has purchased the product and has had some problems, then the warranty may be a good idea.
The bottom line is that there is really no cut and dry formula as to when you should or should not purchase an extended warranty. There are many factors that go into the process.
To the question that you have most likely been asking yourself, I did not purchase the extended warranty for the television.