Extended warranties can be of questionable use for the cost, but most consumers buy them and the vast majority of consumers who use them are satisfied with the service.
PC World magazine recently surveyed 2,031 consumers, 63 percent of whom said they purchased extended warranties for consumer electronics, including cell phones, televisions, notebook and desktop computers and computer printers.
Ninety percent of those who used the warranty said their repair or replacement request was honored and 80 percent said they were satisfied with the outcome, according to the magazine's "Are Extended Warranties Worth It?" report.
Extended warranties, purchased to cover consumer goods (including electronics, appliances and other devices used in the home or elsewhere) after the manufacturer's warranty expires, covers most or all of the cost to repair or replace an item for up to some set term, usually two to five years.
Independent consumer products and services rater Consumers Union has long pooh-poohed the extended warranties and in most cases recommends passing up the service as unnecessary for a variety of reasons:
- Some warranties unnecessarily start from the date of service, even when the manufacturer's warranty is in effect.
- Some gold, platinum and other special credit card issuers allow extra protection that as much as doubles the original manufacturer's warranty.
- Data from thousands of its Consumer Reports readers reveal the cost of an extended warranty is similar to the cost of a typical repair.
- Most electronic products are reliable with only a small percentage requiring repair within the first three years, again, according to the magazine's surveys. Defective electronics typically fail soon after their first use, when the manufacture's warranty is in effect.
Consumer Reports says a possible exception includes microdisplay rear-projection, flat-panel, and LCD models televisions. Preliminary Consumer Report findings show a fairly high rate of repair in the first year for microdisplay rear-projection TVs. LCD and flat-panel TVs revealed no spike in repairs the first year, but the magazine says it's too early to tell what will happen in later years.
The PC World survey also reported that among the 37 percent who did not purchase warranties, only 23 percent of them said they wished they had a warranty when their product failed after the manufacturer's warranty expired.
PC World says it also generally stands by advice that "extended warranties are rarely a good deal."
So why then are were warranty sales up 7 percent to $16 billion last year?
PC World says manufacturers are cutting standard warranty terms -- sometimes from three or five to one year -- and buyers who want to avoid unexpected repair or replacement costs are hedging their bets.
Salespeople are good at what they do -- selling consumers on the idea of added protection for that unexpected event, much like any type of insurance salesperson. Salespeople are encouraged to sell warranties, generally not for commissions, but for the store's and the manufacturer's bottom line.
The magazine reported that in 2004 Dell took in $1.36 billion in extended warranty sales but spent only $1.18 billion servicing both original and extended warranties. Also, PC World reported 24 percent of Dell's net income in the first quarter of 2003 came from extended warranty sales. By the fourth quarter of 2005 that had grown to 37 percent.
Satisfaction by those consumers who do use the contracts also helps boost sales by word of mouth.
PC World generally advises against extended warranties, but says buying an extended warranty could be an option depending upon the product, the manufacturer, the store and other factors.
To help make the decision, along with PC World's pointers, here is some advice to help you choose an extended warranty.
Shop around. Like pretty much anything you buy, an extended warranty for the same item can vary from one store to another. The cost of warranties for similar items, but different brands can also vary. PC World found, for instance, a three-year extended warranty for a $2,500, 42-inch plasma HDTV cost $388 from Wal-Mart; $400 from Best Buy; and $600 from CompUSA.
Buy it later, as much later as you can. Take time to read the contract. You don't have to buy the warranty in the checkout line. Opt for warranties that aren't "inclusive," overlapping the manufacturer's warranty. Some manufactures will tell you when your original warranty is about to expire and at that time offer you an extended warranty or service contract.
Read your credit card terms. Some credit card purchases extend manufacturers' warranties at no additional cost (unless you don't pay off the bill each month and therefore must include the cost of financing the warranty).
Read the small print on the extended warranty contract. If the product must be shipped for service, that cost could be yours. Accidental damage may not be covered by an extended warranty. Your homeowners insurance policy might, however, cover accidental damage. Check for cancellation terms and right-to-cancel laws. Can you get a full refund or prorated amount returned to you? Does the warranty cover parts and labor? Which parts and how much labor?
Examine a product's reliability. Both PC World and Consumer Reports offer extensive product reliability ratings based on real use testing. You may not need a warranty for high-quality reliable products with long manufacturer warranty periods.
Weight the cost of the warranty vs. the cost of the product and the product's life span. Consumer Reports generally recommends repairing appliances and electronics during the first few years when manufacturers' warranties likely cover most if not all of the cost. When the repair cost of a major appliance exceeds 50 percent of the replacement cost, regardless of its age, replacing it instead of paying for a repair (or buying a warranty) is probably a better idea because the replacement cost could be cheaper with the new model and the new model likely brings major new technology into your home, along with a new, free manufacturer's warranty.
Published: March 29, 2006
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 Broderick Perkins parlayed a career in old-school journalism into a
contemporary digital news service that really hits home.
The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services.
The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home.
Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News.
Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake.
He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications.
In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com. |
