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June 2, 2022  |  Education

Is an extended warranty worth it?

Should I purchase an extended warranty?

When you buy something new, you’re excited. You want to care for that product because you want it to last as long as possible. This way, you get your money’s worth.

When the salesperson tells you something like, “If anything happens to that phone, just bring it back and we’ll replace it. No questions asked,” you begin to wonder if an extended warranty or a service contract is worth it. You have to be careful at this point because you are on the verge of making a subjective purchasing decision rather than an objective one.

What is an extended warranty?

An extended warranty can look different depending on the product you are buying. For a vehicle, it may include covering specific parts that aren’t subject to normal wear and tear, such as the transmission, axles, driveshafts, and more. If you are purchasing a small electronic gadget, such as a trail camera, the extended warranty might let you get a new model if the one you have incurs some covered mishap that makes it unusable.

Whatever form an extended warranty takes, the underlying concept is the same: you are buying insurance to cover repairs (or in some instances, a replacement) in case something unfortunate happens.

Warranty vs. extended warranty

While you might think a warranty is a warranty, this is not the case. When you make a purchase, a warranty comes free with that purchase. It protects you from buying an unfit product. If the warranty is written (an express warranty), it is covered by federal law. If there is no documentation, you are still protected by an implied warranty, which is backed by state law.

An extended warranty costs extra. On high-ticket items, such as a refrigerator, it can be worked into the financing so you may be paying for it for months or years. The purpose of an extended warranty is to sell you peace of mind — if something goes wrong with your product that falls outside the scope of the original warranty, there is action you can take to repair or, in some instances, replace your product.

What are the pros of getting an extended warranty?

Extended warranties aren’t all bad. Depending on your situation, the product, and the offer, an extended warranty might benefit some people. The person who would benefit the most from an extended warranty is someone who does not have a budget to pay for repairs. This comes with stipulations, however, as the part that fails must be covered by the extended warranty. If it isn’t covered, then the consumer will still have to pay the bill out of pocket.

The second benefit is a purely emotional one. When you buy an extended warranty, you get peace of mind. Depending on the agreement, however, that peace of mind may only be an illusion. If something goes wrong and it isn’t covered, again, the consumer will be responsible for the repair bill.

The third potential benefit is satisfaction. If something goes wrong with your product and it is covered by the extended warranty, you will be happy you purchased that warranty.

What are the cons of getting an extended warranty?

The one thing you never want to forget about an extended warranty is it is a way for the seller to make money. While it may benefit the consumer, that is not its primary purpose. Here are five things to remember when considering purchasing an extended warranty:

  • Many people who purchase an extended warranty never use it.
  • The cost of the repair covered by the extended warranty may be less than the cost of the extended warranty.
  • If the extended warranty overlaps the manufacturer’s warranty, you are paying for coverage you do not need.
  • Extended warranties are very specific in what they cover. Make sure you read the fine print.
  • Like all insurance, extended warranties are based on risk assessment. In the majority of situations, the house wins.

Is there an option besides purchasing an extended warranty?

If you are considering an extended warranty, but aren’t sure you want to go through with it, there is a way you can insure yourself. Take the money that you were going to spend on the extended warranty and put it in a savings account. This way, if you have to make a repair (or buy a new model), the money is already set aside. If you do not need to make a repair, you never spent the money, so you come out ahead.

Bottom line: is an extended warranty worth it?

An extended warranty is a gamble. You are purchasing it in the hopes that something goes wrong. If it doesn’t, then there is no return on your money. If you can afford to gamble, then an extended warranty may be worth it for you.

FAQ

Does an extended warranty cost extra?

A. Yes. Unlike a manufacturer’s warranty, an extended warranty is something that you purchase. Just like any other service or product, before buying, do your research to determine if it is right for you.

Who profits off of an extended warranty?

A. The seller is the one that profits from an extended warranty. In many cases, they make up to 50% off each extended warranty that is sold. If it didn’t consistently generate income for the seller, it would be discontinued. 

What do extended warranties cover?

A. Extended warranties differ from product to product. In general, extended warranties do not cover routine maintenance. Additionally, an extended warranty might not cover all the parts that are protected by the manufacturer’s warranty. The only way to know for certain what is covered by an extended warranty is to read the fine print.

How much should I spend on an extended warranty?

A. For an extended warranty to be a value, it should only cost a small percentage of the retail price. While 30% is a strict upper limit, closer to 10% is the price you want to target.

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Allen Foster writes for BestReviews. BestReviews has helped millions of consumers simplify their purchasing decisions, saving them time and money.

BestReviews spends thousands of hours researching, analyzing and testing products to recommend the best picks for most consumers.