The Truth Behind Extended Warranties

Are extended warranties a scam? Are they helpful? The truth varies by the type of warranty and when and where you buy one.

An extended warranty is a contract between you and the manufacturer of a piece of equipment. The equipment can be a new appliance, computer or even a car. In the contract the manufacturer promises to repair or maintain the product for a set amount of time.

The period of time in an extended warranty is longer than the original warranty. It is sold at an additional cost when the product is bought.

There are two types of extended warranties: those sold by the manufacturer and those sold by a third party. The coverage is for anywhere between 1 and five years. For the privilege of having an extended warranty, the consumer pays a premium of anywhere between 10 and 50% of the product. Those sold by the manufacturer are generally considered more reliable as the manufacturer isn't as apt to go out of business and take your money with them.

The second type of extended warranty the contract is with an independent company, which has no ties with the manufacturer. Unfortunately too often these companies go out of business and you're left with a worthless contract.

One problem with extended warranties is the majority of them start when you buy the product. So in essence you are paying for coverage already covered by the manufacturer. Extended warranties are helpful only if you remember you bought it and remember where you put the paperwork.

Today almost every electronic manufacturer offers warranties. Before you buy the piece of equipment check out the reputation of the equipment. You can search online by going to a browser like Google and type in the name of the product followed by either problems or reviews. This will give you an idea of the reliability of the product. Or you can check in a magazine like Consumer Reports for the product report.

Look at the warranty, which comes with the product. Compare warranties on products. Also many credit card companies offer extended warranty coverage with people who buy using their credit cards.

Don't take the word of the sales person about what is covered under the warranty. Have the salesperson point out certain coverages in the warranty. Warranties are very good profit centers for the sales people.

Know what the reputation is of the product you want to buy. If you intend to use the product frequently you may find an extended warranty can cover unexpected expenses, but only if the coverage for that event is included.

Be an educated consumer. Extended warranties are a bet by the warranty company. You're betting the item will break, they're betting it won't. Realize when you buy an extended warranty you're betting against the house. Odds are you lose.