Extended Warranties not always a bad idea – Bangor Daily News

by Russ Van Arsdale
Executive Director,
Northeast CONTACT

We’re days away from that time of year retailers love: holiday shopping. That’s when the question we’re apt to hear again and again at the cash register is, “Would you like the extended warranty?”

The answer for many of us in an automatic, “No, thanks.” Perhaps we’ve read the advice from many consumer advocates (Consumer Reports among the most vocal) who contend that virtually all extended warranties are a waste of money.

Before we jump on that bandwagon, let’s take a closer look. It’s true that these add-ons represent a tremendous source of potential profit for retailers; some observers put the profit margin at around 70 percent for the seller. That leaves 30 percent for the insurer, the backer of the lengthened guarantee that the product will keep working as intended. Assuming the insurer also expects to make a profit, it seems unlikely that huge numbers of extended warranty claims are being paid.

That seems to be the experience of most consumers. Consumer Reports publishes repair frequency statistics on a variety of goods, and those results suggest that – with some widely publicized exceptions – most consumer products hold up pretty well during their expected lifetimes.

Before deciding on an extended warranty, our best advice is simply to know what you’re buying. “Read the fine print” is sound advice, no matter what you’re buying. Not all offers are created equal.

Some extended warranties just lengthen the duration of the manufacturer’s warranty, while others include perks. If you’re buying something you don’t want to send away to get fixed, an in-store repair clause may be reason enough to get the extra coverage. Other incentives may also be factors in your decision making.

Before deciding, you should determine what protection you may already have. Make your purchase with a major credit card, and the card company may automatically extend the warranty coverage. In the case of major appliances, for example, you need to have a large enough credit limit to cover the purchase; and be sure to register the purchase with the manufacturer.

Your homeowner’s or renter’s insurance may also offer protection warranties will not. A storm-damaged or stolen item may be covered for cash value (net worth after depreciation) or replacement value (what a new one costs). Check your policy first, and keep your home inventory up to date.

Maine’s Superintendent of Insurance, Mila Kofman, says “It’s important to do a little research ahead of time so you make smart choices at the register and avoid spending more than needed.”

Maine has an implied warranty law on the books. Simply put, goods should work as intended for four years, regardless of manufacturers’ guarantees. Enforcing such a law is tricky. The Maine Attorney General’s office looks for a pattern of product failure and is unlikely to take action on behalf of a single consumer.

The final word on the subject comes from the naysayers, who advise consumers to self-insure. Setting aside small amounts of money in interest-bearing accounts allows you to ignore the sales pitch and have your own extended warranty account, if and when you need it.

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