Are Extended Warranties Worth The Cost?

It seems that over the past few years, extended warranties have become more prevalent in just about any purchase.  While they have been traditionally associated with big ticket items, such as automobiles and major appliances, they now extend into electronics and personal computers. 

It in quite common on the way to the check-out counter to have a sales clerk extol the benefits of buying an extended warranty. An extended warranty kicks in after the manufacturer’s warranty runs out. The insurer pays to repair or replace the item for a specified period of time, usually two to five years from the date of purchase. (Some even start on the date of purchase, even though the manufacturer’s warranty is also in effect.)

It’s too bad that we cannot comparison shop on these warranties.  While some salespeople may refer to their programs as warranties, they are actually replacement plans, depending upon the item.  Replacement plans are usually offered on less expensive items and promise to give you a new or rebuilt product (or store credit) if the unit you bought stops working while the plan is in effect.

For retailers, that makes perfect sense. When profit margins on the products themselves are being squeezed, extended warranties typically yield 40 to 80 percent profit on average.  But if these extended plans are cash cows, I’m sure you can imagine who’s paying for this. 

Before you say yes to an extended warranty on any product, see whether your credit card provides similar coverage. Such plans, most often found on gold and platinum cards, typically lengthen the original manufacturer’s warranty by up to one year. If you use a MasterCard, look in the fine print for the words “extended warranty.” Visa calls its program Warranty Manager Service.

There is no question that choosing a warranty comes down to more than just cost.  There’s the psychological factor that comes into play knowing you have some recourse if and when the item suddenly stops working.  And lets face it; products today are more complicated and made from cheaper materials. 

I can tell you from personal experience that I have benefited on multiple occasions from having an extended warranty.  So while extended warranties clearly have a place, I would probably consider them only with bigger ticket items that are likely to be used (and abused) on a frequent basis.