The Skinny on Extended Warranties

From high-end refrigerators to low-end digital cameras, finding the product with the right features at the right price can wear you out. But once you solve that puzzle, another one pops up: Should you buy an extended warranty?

Most experts don’t think so. Writer Erica Ogg reviews extended warranties for CNET, an online high-tech information exchange. She understands why some consumers prefer to play it safe with extended warranties, but when she shops she always declines them.

Breaking down is hard to do

Extended warranties cater to consumers who are afraid that something will go wrong. As we all know from experience, appliances and consumer electronics can go on the fritz for reasons few of us can fathom, much less predict or fix. For a price, you can rest easy that if anything misfires someone will come to your rescue at no extra charge—provided that’s what the warranty specifies. As comforting as extended protection sounds, most consumers shouldn’t pay for coverage they probably won’t need.

Extended-warranty prices are significant relative to replacement costs, especially at the low end of the product price range. For example, say you’re in the market for a $200 digital camera. Protection is available from a well-known retailer for about $35 for two years. A five-year option at another retail chain costs $79—that’s 40% of the purchase price!

Just say no

Refusing extended warranties does not strip consumers of all protection. Reputable manufacturers back products for three to six months. To encourage credit-card use, some issuers extend or even double manufacturers’ warranties for up to a year or longer. Typically, extended warranties overlap that cardholder benefit. At the very least, you should ask whether the extended protection can commence after the cardholder protection expires.

If you do decide to purchase a warranty, especially for bigger ticket items such as home entertainment systems and appliances, always ask whether it includes parts, labor, in-home service and replacement with an equal substitute if a problem persists. Under some plans, partial coverage of parts and labor can leave you with repair bills. And shop around. A gold-plated five-year plan on a $2,400 refrigerator from a national chain store costs $549. From another, stripped-down coverage would set you back only $99.

Most consumers choose to keep the price of extended warranties in their pockets, but some put the money in a savings account where it’s available for repairs or replacements if problems arise. You could pay almost $1,000 for five years of extended protection on a refrigerator ($549), a television set ($300) and a camera ($79). Alternatively, you could put that cash in an emergency-fund account. If needed, use it for repairs. If not, you’ve got cash in the bank earning interest. With enough discipline, that should insure the best results.

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