As electronics have become more of a commodity, profit margins have gotten squeezed. One way specialty electronics retailers boost their bottom line is by selling you an extended warranty, which can yield a sweet 40 to 80 percent profit, industry experts say.
With an extended warranty, the insurer must pay to repair or replace the item for a specified time period, usually two to five years from the purchase date. Some start on the date of purchase, even though the manufacturer’s warranty is also in effect.
Consumer Reports’ long-standing advice is to pass up this costly add-on. Survey data from thousands of our readers have shown that the cost of an extended warranty is roughly similar to the cost of a typical repair, which you may never need. Most electronics products are reliable, and only a small percentage needs repair within the first three years, our ongoing reliability surveys show.
Possible exceptions include three types of TVs: microdisplay rear-projection, flat-panel, and LCD models. Preliminary findings from our user surveys show a fairly high rate of repair in the first year for microdisplay rear-projection TVs. LCD and flat-panel TVs show no spike in repairs the first year, though it’s too early to tell what will happen in later years.
Given the pricey repairs for these TVs, you may want to buy an extended warranty, especially for a microdisplay rear-projection model. It should cost no more than 20 percent of the purchase price. (The only other product for which an extended warranty might make sense is a treadmill, for which repair costs also can be high.)
Before you consider any extended warranty, check whether your credit card provides warranty coverage. Such plans, most often found on gold and platinum cards, typically lengthen the original manufacturer’s warranty by up to one year.
Make sure you know who is offering the warranty. Is it the car manufacturer or a reputable after-market company? Make sure you know who it is that’s underwriting your policy. After your first mechanical breakdown is not the time to find out who your underwriter is!
Know what is covered and for how long. This is always the most misinterpreted area of any warranty. If you are not clear on the definition of terms such as power-train, drive-train, or any electrical components covered, then get with someone who is and get educated. Also, remember that mileage and time conditions of the warranty may vary for different systems your vehicle
Know what your responsibilities are in the warranty agreement and follow them. Remember that a warranty is an agreement, not an entitlement. There are certain things you must do! For example, make sure you know what systems require service and follow the manufacturer’s recommended mileage intervals. Keep complete records of your service work. This is especially important when it comes time for a claim. Find out the amount of the deductible in the event you have to file a claim. Also, how is the payment made to the repair facility? Some warranty companies have the insured pay the repair facility, then they reimburse the insured. Other companies pay the repair facility directly.
Make sure you understand what is wearable (maintenance items), because your extended warranty will not cover such items. Some examples are brake shoes/pads, oil or air filters, tires, shock absorbers or struts, belts and hoses, just to mention a few.
The extended warranty industry has come a long way in the last twenty years. Many horror stories have been told about unsuspecting customers buying warranty plans that did absolutely nothing for them when it came time to file a claim. Not only did they have to pay for the repair, but they also were out the money they had paid for the “warranty.”