When you set out to make a large purchase, like a computer, appliance, or car, you expect it to last you for years. Most consumers, though, have experienced the frustration when a new item breaks, and you end up sinking even more of your hard-earned money into the same item again and again. So when the salesperson offers up an extended warranty, it’s tempting to buy this added protection – but is it worth it?
Should You Buy a Warranty?
Purchasing warranty protection is like getting insurance on your item. If it breaks, you can have it repaired or replaced for little to no cost. However for many items, purchasing a warranty is often a waste of money. While there is no one right answer, there are some ways to help you make the decision on whether or not to buy the warranty.
What Protections Do You Already Have?
Even without an extended warranty, you have some consumer protections. First, most consumer items come with a manufacturer warranty. The most common term is for one year, during which the manufacturer will repair or replace broken or defective products free of charge. Experts agree that most defects will be apparent in this first year.
Other protections are less obvious, but just as helpful. Your homeowners insurance will cover damage and theft of your items as specified in your policy. Credit cards also offer some protection, with some cards doubling your manufacturer warranty, free of charge. Finally, if an item stops working within the store return window, you can typically return it for a full refund.
Your Personal History
Your own personal history with similar items should also play a role in your decision. Most original warranties are limited to breakage that occurs due to manufacturing issues, rather than accidental damage. If you drop your new phone and shatter the screen or your toddler takes your iPad for a swim in the tub, your warranty won’t typically cover the repairs.
Only you know how you intend to use your new purchase, and the conditions it will be exposed to. If you have a history of breaking similar items, purchasing a service contract that covers accidental damage can be well worth the money, but if you’re just replacing an item that has uneventfully reached the end of its expected lifespan, you may not need extended coverage.
Cost vs. Benefits
Extended warranties can be expensive, with prices as much as 50% of your purchase price. Most, however, range between 10-20% of the purchase price. Many industry experts believe that if it costs more than this 20% threshold, you will probably not get your money’s worth out of the warranty. Some other factors to look at include:
- What’s covered in the warranty? Is it just defective workmanship, or are you covered for accidental damage and wear-and-tear?
- What are the conditions for coverage? Some warranties are easily voided by improper use or storage.
- Who provides the repair service?
- How long will the warranty last?
- How much will the cost of the item depreciate over time? Many consumer electronics, for instance, drop in price rapidly as new technology is released, make the warranty more expensive than replacing the item in a couple years.
Ultimately, there is no right answer. If you expect the item to need repairs, a warranty can pay for itself after just one incident. However, many times the warranty sits unused, wasting your money. Before jumping into a warranty purchase, carefully consider the expected use, reliability, and the cost to help determine if a warranty is the right choice for that particular item.
This material is for informational purposes only. All statements herein are subject to the provision, exclusions, and conditions of the applicable policy, warranty, and state and federal laws. For an actual description of all coverages, terms and conditions, please refer to the applicable insurance policy or warrant or check with your insurance professional or retailer.