When does it make sense to buy an extended warranty?

CONSUMER FORUM

By Russ Van Arsdale, executive director Northeast CONTACT
Posted Jan. 18, 2016, at 7:31 a.m.

Consumers who do their research may conclude that buying an extended warranty is not generally worth the cost.

On major appliances, the manufacturer’s warranty covers the period of initial use, when minor problems generally surface. More serious problems likely will arise after an extended warranty period is over, so the cost of coverage may not be justified.

However, for some really big purchases, extended warranties may be worth a second look. Look carefully because many consumers have found that some extended warranties were bad investments. Third-party coverage for vehicle repair is notorious for refusing to pay because the problem in question is “not covered.”

For private homes, purchasing a warranty might make sense. In many states, homebuilders have to provide a warranty on new homes they build. An extended warranty is different from home insurance, which covers your loss in case of natural or manmade disasters. Owners of existing homes can buy warranties that cover heating and cooling apparatus, plumbing and electrical systems and appliances.

A home warranty likely will cost between $350 and $500 and typically is paid annually. The cost will depend on what you want covered — for example, appliances only, systems only or both. There typically are fees for every service call, running $75 to $100. You should ask up front whether you’ll be charged a fee each time if more than one service call is needed to resolve a problem.

Another question to ask a warranty provider is whether service providers are licensed. The company may allow you to use a provider of your choice, but most use their own service people to make sure work is done correctly. Also, find out about dispute resolution if you’re not satisfied with the service that’s provided.

There’s a section of Maine law called the Service Contract Act, but it applies only to contracts on tangible personal property — goods costing more than $100 and sold for noncommercial use. It requires that sellers of service contracts be licensed. You can find a summary of the law at maine.gov/pfr/insurance/faq/Service_Contracts.html.

You may determine you don’t need an extended warranty for your home. You may instead decide to self-insure — that is, to set aside money on a regular basis to create your own insurance fund. If you need it to fix an appliance or make another repair, it’s there. If such a need does not arise, you can invest the money or spend it on something else.

Consumer Reports looked at home warranties a few years ago and concluded that, for most homeowners, the self-funded approach makes the most sense. An exception, Consumer Reports noted, is when a house is for sale and the seller buys an extended warranty to reassure prospective buyers.

If you buy such a house, make sure the warranty is paid in full and know all the terms.

ConsumerAffairs.com offers comparisons of 15 of its top-rated home warranty plans. Read more at consumeraffairs.com/homeowners/aaa_warranties.html#guide-features.

Another website with reviews and related information is homewarrantyreviews.com.

Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s all-volunteer, nonprofit consumer organization. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write Consumer Forum, P.O. Box 486, Brewer, ME 04412, visit https://necontact.wordpress.com or email contacexdir@live.com.

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