I’ve had both awesome and horrible experiences with warranties. For example, I recently got two new tires for zero out-of-pocket costs, thanks to a Subaru warranty. But my dishwasher pooped out just weeks after its five-year warranty expired, and the company wouldn’t budge. My Facebook rants on the topic only elicited my friends’ stern admonishment against the purchase of extended service plans.
So what is the answer? When should you buy additional coverage for your products, and when is it a waste of money? I called Cheryl Reed, the spokesperson for the service-review site Angie’s List, to find out. Here’s what I learned.
There isn’t a blanket rule for warranties
“It really does depend on the person and the product,” Reed says. Every person will have contract clauses that are more important to them than others. For example, some service plans allow customers to choose their repair technician, while others limit you to their list of professionals. So if you are committed to a favorite repair guy, make sure any warranty you’re considering would allow you to hire him.
For products you buy in store, such as cars, appliances or electronics, salespeople likely earn a commission for every warranty they sell. Is that salesperson telling you horror stories about breakdowns? Getting up in your grill, pressuring you to buy the warranty? This isn’t uncommon. In a recent Consumer Reports survey on warranties, 15 percent of shoppers who purchased electronics at brick-and-mortar stores bought service plans that cost an average of $75, compared with just 8 percent of online electronics shoppers, who spent $65 on average on these plans. “Never rely on the salesperson to tell you what’s in the fine print,” Reed warns. “That’s your job.”
When to skip an extended warranty
Reed says that for every product you purchase, always weigh the pros and cons of a warranty. To make things a little easier, here are some general rules of thumb. In these cases, think twice before shelling out extra for an extended coverage plan:
● If you upgrade your phone, TV or computer frequently, a warranty is likely not a good investment. Likewise, if you buy a new car every two years, skip any service plan above the manufacturer’s 36,000-mile, three-year guarantee.
● Don’t buy something that doesn’t make financial sense. Consider the price of the item against the cost of the service plan. A $200 warranty for a $300 dishwasher doesn’t add up. However, a $200 warranty for a $2,500 refrigerator may be a good investment.
● Skip warranties on inexpensive items. You don’t need to cover an electronic can opener or waffle maker. Instead, invest in a quality product that’s less likely to break with normal use. Do your homework at Consumer Reports before buying.
● Avoid warranties provided by a third-party company that the Better Business Bureau shows has a lousy track record.
Read the fine print
● Check the manufacturer’s warranty first. Nearly every consumer product comes with some kind of warranty (typically 90 days to one year for electronics). Ask the salesperson to open the package and read the warranty.
● You likely have free coverage from your credit card. “Few people know about this,” Reed says, “but generally when you pay with a credit card, it doubles the manufacturer’s warranty and covers repairs or replacement.”
● Really, people, read the fine print. Each service plan comes with its own quirks, so make sure you’ll be comfortable sticking to the rules. For example, an auto extended service plan may only be valid if you prove you had all the oil changes done on schedule and at a certified dealership. Are you down with that?
● Who chooses the service provider? Angie’s List reports that home warranties are consistently complained about the most, and one of the primary reasons is the poor quality of the service.
● Keep it real. In general, assume that normal wear and tear, natural disaster and mold aren’t covered.
● Homeowner’s and renter’s insurance may be the answer. In the event of natural disaster, fire, theft or vandalism, most possessions are likely to be covered under these other insurances.
● Remember: Manufacturers and third-party warranty companies aren’t stupid. Most items do not break before the warranty expires. Consumer Reports finds that most products break down during the second and third years of ownership, which is after the typical coverage period. The organization also says that the cost of repairs is generally less than the price of an extended warranty.
Instead of shelling out for a warranty, many experts suggest self-insuring. This just means saving a set sum each month in an interest-generating savings account. That way, roof repairs or a busted blender don’t torpedo your budget. Opt for short-term investments like a savings or money market account, and be disciplined about squirreling away that fixed amount each month. For example, if you purchase a new car, put $100 in a savings account each month. At the current rate of about 0.2 percent, you’ll have $3,711 in your own service plan that you can use toward repairs—or a new vehicle if you choose.
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