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Do Extended Warranties Warrant Merit?

Extended warranties may not be the panacea that your electronics store makes them out to be. While they aren't a scam, they may not be a worthwhile purchase, and buying one should be done only after careful consideration.

Providing extended warranties tends to benefit the company more than the consumer. And they certainly make a profit from the service, which is why they offer the service. That doesn't negate the fact that if you purchase an extended warranty and your product breaks down during the warranty period, you made a smart purchase. Statistically speaking, however, consider that appliances are most likely to break down shortly after you begin using them, or after many years of use. A manufacturer's warranty typically covers the first several months after you purchase the product because when a product breaks down that soon after purchase it reflects badly on the company. Once an appliance survives its first year with no problems it is very unlikely that it will break down for the next five years. Extended warranties generally cover the very period where the least amount of repair is necessary-that time from six months to five years.

In order to convince you to purchase the extended warranty plan, sales staff at appliance stores may use the analogy that the plans are just like auto insurance. This isn't entirely true. Extended warranties must be purchased when an appliance is new, unlike auto insurance, which can be purchased any time. These warranties only cover the appliance itself, while insurance for your car can cover external liabilities. Unlike auto insurance, warranties are not generally offered for the life of the product, and they cost much while providing little benefit. Competition for warranties, unlike the automobile insurance industry, is limited. Although competition does exist, few consumers know they can shop warranty plans.

One way to determine if you will need the service is to figure out whether the cost of the warranty, plus any required deductible, is a sound way to spend your money. The cost of the warranty should not be more than 75 percent of the repair cost.

Purchasing an extended warranty is certainly a personal choice and is not necessarily a bad idea. But making the decision to purchase one should be a conscious decision based on the value of the product and the warranty, as well as any personal experience that you have had with the product. The decision should not be a spontaneous decision at the cash register or unduly influenced by a sales person.


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