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April 2, 2000
You've just found the perfect stereo for your home. It's fully loaded with all the cool bells and whistles, but right before the salesman rings up your purchase he says: "We're running a special on extended warranties and I highly recommend you buy some today. You never know what can happen." You ask yourself whether it's worth it or are you just throwing money down the drain.
Extended warranties are nothing more than service contracts that are sold either by the manufacturer, the retailer or a third party called an administrator. Essentially, there are six basic plans: Date of Purchase Plan, Extension Plan, Major Component Program, Comprehensive Program, Replacement Program and Deductible.
So what benefit do you receive from extended warranties – not much outside of some piece of mind. The probability that you will actually use the extended warranty is very low. Even though as many as 40% of consumers who purchase electronic gadgets or appliances buy extended warranties about 15% - 20% of those who buy it actually use them.
It has been found that most problems with electronic products happen either within the first few weeks of purchase, when the item is still covered under the original manufacturer's warranty, or after several years when the average extended warranty has already expired. As it turns out, extended warranties are big money makers for the seller and a waste of money for the consumer.
A word to the wise, if you decide to purchase an extended warranty make sure the warranty is backed by a solid insurance company and that it will be easy to file claims if the need arises. Additionally, if a third party administrator is involved, find out if the retailer will assume responsibility if the administrator goes out of business. Extended warranties should be reasonably priced. The cost of a basic warranty should not exceed 15% of the total value of the product.
The best way to protect yourself against unwanted defects in electronic goods is to buy high quality products. These types of products are usually manufactured by reputable companies who offer good manufacturer's warranties. For large purchases, consider checking out product reviews in an issue of Consumer Report (check out your local library for back issues). Also purchase your items from a solid retailer with a reputation for good customer service and satisfaction. Lastly, consider paying for your products with a credit card for an extra layer of protection against defects. Many charge cards double the original manufacturer's warranty for up to a year. Check out your credit card's policies to verify the terms of any additional warranties.
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