Watch Out for Extended Warranties

sick computer

You do all your research on the best brands and models, you comparison shop and find the best deals, you get to the store and find exactly what you’re looking for at exactly the price you expected and then, the seemingly friendly salesperson hits you with the big question: “Would you like to purchase warranty protection?”

Of course, you’re going to say no. (Read on, and you’ll know exactly why you should say no.) But, much like a six-year-old told she can’t have cookies right before dinner, “no” just doesn’t seem to be an acceptable answer.

So the sales person plys you with a shopping list of items not covered by the manufacturers warranty that this golden ticket – at a platinum price – does, offering you up a little folder with all the details. But you just want to get home and play with your new toy. So you’re not going to carefully read all the fine print (and it’s almost all fine print) to figure out what this piece of paper covers and, more importantly, what it excludes.

Only a sucker buys the in-store extended warranty at the checkout counter. Don’t be a sucker.

You don’t need it and, if you do, it probably won’t be valid

Almost everything you buy comes with some sort of warranty covering manufacturing defects. Granted, it may only provide coverage for a month or a year, but if you really did get the lemon built by the Friday afternoon shift at the factory, odds are it’s not going to work the minute you open the box.

Typically, that generous “three-year” plan likely only kicks in after the coverage by the manufacturer expires and, short of a really big ticket item, how many of us are going to remember two-and-a-half year’s later that we paid an extra $100 for an extended warranty.

I’ll never forgot the time I popped into a nearby electronics store looking for a cheap pair of old-school headphones so my daughter didn’t have to use ill-fitting ear buds. They were on sale for less than $8. The salesman offered me a three-year warranty for $5. Yep, a warranty that cost two-thirds the product price. I didn’t even have to look at the proffered form to know that no matter how soon this-disposable-by-design headset eventually did break, there’d be some sort of rider (“Cannot be used by six-year-old girls to watch portable DVD players”) that voided by coverage.

It’s overpriced

Even when you do need repairs, watchdog consumer advocacy magazine Consumer Reports found that, “When breakdowns occur within the extended-warranty period, the average cost of repairing the appliance is not much more than the average price paid for the warranty.” In other words, pay for the warranty upfront and you’re guaranteed to pay about as much as you may have to pay if the item happens to break down.

And here’s the dirty little secret that the store’s not going to tell you: The margins on extended warranties are WAY higher (50 percent or more) than the profits they’re earning on the product itself.

You can find better

Even if you’re really worried about something breaking down the proverbial day after your manufacturer’s warranty expires, there are better options. If you purchased the item using a credit card, chances are you probably already have coverage. (Read the fine print on your cardholder’s agreement.)

If not, consider third-party extended warranties. One popular option is a company called SquareTrade, which offers warranties on everything from cellphones to appliances. They claim to provide comparable coverage to retail warranties for as much as 60 percent less in fees, and significantly lower deductibles on claims.

But, just like you did before you walked into the store, do your homework on the warranty company – how much it’ll cost, what it’ll cover, what is excluded, and how easy or difficult it is to make a claim – before you sign on the dotted line.

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