Should You Buy the Extended Warranty?

When we buy new items - electronics, vehicles, and other large purchases - we assume that we are purchasing a product that will work for several years to come. Unfortunately, however, not all products will live out their intended lifespan, and purchasing the extended warranty can guard against the need for repairs or replacements. But when should you buy the extended warranty, and when should you take your chances?

First of all, the extended warranty is essentially an insurance package. When you purchase and sign for the extended warranty, you'll receive a several-page-long document that will explain in detail what the extended warranty covers. Like automobile or home insurance, the extended warranty won't necessarily cover every eventuality; most won't be of any help if you damage the product yourself.

Before you buy any extended warranty, ask to see the agreement. Read it over carefully - including the fine print - and ask questions about anything you don't understand. If the language is vague or confusing at all, make sure the sales representative spells it out for you.

Sometimes there is only one extended warranty, and sometimes you'll have a choice of longevities. For example, the $200.00 extended warranty might cover your brand new computer for two years, while the $400.00 extended warranty will provide coverage for ten years. Make sure you understand exactly what you are purchasing before you write that check.

Next, you must weigh the possibility of damage against the price of the extended warranty. If your car, computer or other product doesn't ever require maintenance, you don't get your money back at the end of the term, just like your auto insurance premium won't be refunded if you avoid accidents. If you're fairly confident that you won't require maintenance or replacement for the product, buying the extended warranty might be an unjustifiable expense.

And finally, the price must be reasonable in order for an extended warranty to be worth your money. For example, the last computer I bought cost $900.00 and the warranty cost $600.00. At two-thirds of the purchase price, I passed on the extended warranty. If repairs cost more than $600.00, I'd rather just go out and buy a new computer.

If you're purchasing an extended warranty for your car, you have to be especially careful. For one thing, if the warranty isn't transferable, it will be difficult to sell your vehicle, and the warranty won't be worth the price you paid if you sell the car in two years. Car salesmen will also try to get you to buy the extended warranty after reading the colorful brochure they hand out. Don't fall for it. Toss the brochure back on his desk and ask to see the policy paperwork. That will tell you exactly what is (and what is not) covered in the extended warranty.