Are extended warranties worth the money?

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Published Date 10/16/2018

It feels like a sales pitch, and it definitely is. But it’s still one worth considering. You are told that the manufacturer of your brand new kitchen appliances suggests at the point of sale that you buy an extended warranty as your salesperson talks about “peace of mind.” After all, their out-of-the-box warranty only covers repairs for a year or two. But you have to wonder..... Is buying this extended plan a good bet or a sucker’s bet?

What you don’t know is that these warranties are highly profitable for retailers, as they can run up the total cost of your purchase by $100 or more. To boot, very few claims being filed per year on new products. In the fast-paced world of home electronics, by the time the extended warranty expires, future technology will no doubt far outclass today's. Still, having purchased an extended plan feels “safe” after you consider that you have no intention of trading in your appliances for newer versions any time soon.

Another thing most consumers don’t know, however, is that household electronics as well as appliances (if used properly) have seen great improvements in product reliability, making the price of most extended warranties about the same as a repair bill. The “they don’t make ‘em like they used to” adage rarely applies any more with advanced technologies being used in a refrigerator, dishwasher or big screen TV. Remember when everyone freaked out over cars being run by computers, with digital dials on the dash?

In a Realtytimes article on the topic, Blanch Evens cites Consumer Reports, whose data concludes that the likelihood of most home appliances needing repairs in the first three years is less than one in five, while most defects will reveal themselves within the first year of use, within the manufacturer's warranty period.

So when is it prudent to buy an extended warranty? Most experts agree that it’s wisest to buy them for the most costly items that would be difficult to repair or replace. “These include high ticket items like a $6000 Viking gas range or pricey hi-definition plasma TVs,” says Evans, quoting advice from smartmoney.com.

Be warned. Salespeople are adept at selling extended warranties and have been carefully trained to do so, playing on your emotions suggesting it’s “insurance” against costly repair bills. But consumer advocates suggest that you should consider buying them only if the warranty is not more than 10% of the purchase price.

If you decide to opt out of this extra purchase, of course, you’ll need to be prepared to shoulder the cost for assessment (service calls), repair (time in labor plus parts) and shipping. “Though it's more of a hassle, this can be the most cost-effective measure. If you have a warranty option of $250 and you experience only one instance in the life of your appliance where it needs $100 of work, you could save $150, or 60%,” says Evans.

Source: Realtytimes, TBWS

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