Extended warranties: peace of mind or money trap?

Sometimes buying an extended warranty protects your pocketbook and buys you peace of mind. Other times, the cash outlay isn’t worth the cost.

What’s the scoop on extended warranties? Is buying an extended warranty worth the peace of mind — or just another money trap? I can recall only once that an extended warranty helped: on a refrigerator’s main brain just shy of the four-year warranty extension. In this case, buying a comparable new refrigerator would have cost seven times the original warranty price, so I think it was a good decision. The repairman said the part would have cost close to $500.

Here are five things to consider when you’re asked to buy an extended warranty:

1. You will be offered an extended warranty. Nowadays, it’s rare to purchase appliances or electronics of any value without a pitch to add a  warranty. That’s because a large part of what you pay goes directly to the retailer. The sale of point-of-purchase extended warranties is like lucrative gravy poured over the top of a completed transaction. This alone is no reason to decline, but don’t be quick to fall for the salesperson’s pitch. The motive is to up-sell, not save you money over the life of the product.
2. Chances are you won’t need the extension. According to data collected by Consumer Reports, most products don’t fail within the extended warranty period. You won’t care about these stats if your product does break early, but as with all types of insurance, you’re paying to gamble. You’re smart to keep the odds in mind.
3. What percentage of the product price does it cost for extra warranty? If you buy a coffee maker for $50 and the extended guarantee costs $30, the protection isn’t worth the price. Always weigh value against cost.
4. Consider how fast technology changes and prices drop. This may be particularly true for electronics. These days, you can spend $500 for a television comparable to one for which you might have spent $2,000 a few years back. That’s true for notebook computers, too. Will the cost of a three-year warranty for repair to an older model satisfy you when everyone else has the latest and greatest?
5. What’s your personality type? If you’re a worrier and plagued by anxiety over the possibility your big-ticket item will break, the cost of an extended warranty may be worth your peace of mind. If you’re the non-worrier half of a married couple, be prepared to take full responsibility for future issues if you convince your spouse to decline extra protection. If you’re not willing to take potential blame and suffer a possible “I told you so,” pay up now and put your spouse’s mind at ease.

In the end, only you can decide whether taking a chance on an extended warranty is worth your hard-earned dollars. I guarantee you will be offered a plan when you buy something, so be prepared. Don’t let a good sales pitch at the register catch you off guard and break your budget.

Want to find out more about how your thinking and personality affect your spending habits? Read:

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