A new dishwasher, headphones, sofa, espresso maker, leaf blower — name it and probably someone has tried to sell you an extended warranty for it. Recently, the self-service checkout screen asked me if I wanted to purchase extra product protection for a remote-control toy car on clearance. Of course, it makes sense to protect yourself against financial catastrophe. That’s why we insure our homes, vehicles and health. But do you really need to pay $3.99 to protect a $7.99 toy? The answer is simple: No.
It’s all a mind game, says Kevin Brasler executive editor with Consumers’ Checkbook, a nonprofit consumer advocacy group. “Sellers amp up consumer anxiety that you are spending money on a product and will feel awful if something unexpected happens to it. Then, they offer a solution — to sell you a warranty, which is basically really expensive insurance.”
Almost all products come with a written “manufacturer’s express warranty.” This affirms the quality of the goods and agrees to provide repairs or a replacement within a specified time if the product is defective or fails, says Cathy Lesser Mansfield, a consumer law professor at Case Western Reserve University in Cleveland. In addition, products have an “implied warranty of merchantability.” That’s a merchant’s guarantee that your purchase will do what it’s supposed to do. For example, a washing machine should wash clothes, or a new watch should keep accurate time. If it doesn’t, you have a right to return it.
Manufacturers’ warranties provide some protection at no additional cost for at least a few months, if not longer. The trick is knowing what is covered and for how long. Before you buy, ask the retailer about the warranty for the specific item you want or do an online search (for example, “GE refrigerator warranty”). If you know the model, include that in your search.
Keep in mind that retailers get a percentage or a commission for every extended warranty sold, and they often incentivize salespeople to push them. “Whenever salespeople say you must protect the item, that’s a red flag. They’re looking to make extra profit,” Brasler says. And Lesser Mansfield points out that if you are financing the purchase and buy an extended warranty, you’ll pay interest on that, too.
“Everyone is making money off that extended warranty, except the consumer,” says Andrea Woroch, a consumer savings expert.
Most extended warranties have many exclusions and conditions over which you have no control. They may cover a broken wire, but not failure caused by a power surge. And many warranty providers contract with third-party repair companies, so you have no idea who will service your item or how reliable and skilled they are, says Woroch. Electronics and appliances have a rapid depreciation value, so if something can’t be repaired, you may get no choice on the replacement model, or the warranty provider will use the depreciated value.
The other stumbling block is the hoops you must jump through for a warranty redemption. On top of multiple phone calls just to get to the right person, you’ll need a pile of paperwork. Brasler was offered a five-year plan for $18 to cover his $99 office chair. If it broke, he would need to provide the manufacturer’s warranty, original receipt, copy of the protection plan, receipt for the protection plan and proof that he still owns the product. “Would I just take a picture of me sitting in the chair?” he says. He declined.
Even when extended warranty coverage is comprehensive, it is still expensive relative to the risk of breakage or failure. Brasler says his daughter saved all summer to buy a new phone that came with a one-year manufacturer’s warranty. After her trade-in and other incentives, she paid about $600. The company offered a two-year extended coverage plan with theft and loss protection for $269, he says, with a deductible of $149 for theft/loss, $29 for a broken screen or $99 for any other damage. Under the plan, you get only one replacement or repair. And once you’ve redeemed the warranty, you have to buy an additional policy. “The math really creeps up,” Brasler says. “Do you really need insurance when it costs $400 to replace a $600 phone? I told my daughter a really good case is just as good insurance.”
It’s important to read the warranty section of the product’s users manual and understand what is already covered. “You won’t understand it. I’m a consumer law attorney and even I don’t understand all the wording. But try to figure out the basics of what it covers,” says Lesser Mansfield, who previously was a policy analyst at the Consumer Financial Protection Bureau.
Many credit cards offer extended protection on items you purchase with the card, making it easy to say no to the upcharge. Some cards will either double or add 24 months to the manufacturer’s warranty.
Brasler says that Costco also offers a free warranty extension on certain products regardless of how you pay. “The fact that Costco offers for free this kind of coverage shows it’s not worth paying hundreds of dollars,” he says. One other option to help defray the cost of repairing and replacing items is to set up a savings account earmarked for repairs, even if you can only contribute $10 a month, says Lesser Mansfield.
Or, instead of dealing with pages of fine print, do your research on big-ticket items and consider spending a bit more — if your budget allows — to buy reputable, reliable products. “Being smart about a purchase gives you the best protection,” says Woroch.
As a rule, extended warranties are a cost not worth the reward. Resist the sales pitch. “Merchants make you feel dumb not to get them, but the benefit doesn’t calculate to the cost,” Lesser Mansfield says. “Don’t beat yourself up for hitting the decline button at checkout.”