Are Warranties Worth the Money

Every time consumers purchase products they are bombarded with requests to buy a warranty. Most products come with a standard manufacturer’s warranty. For computers, cell phones and electronic devices warranties usually last one year from the date of purchase.

Companies use aggressive tactics to lure consumers into buying warranties. Unfortunately many consumers do not read or understand the warranty and many pay for extended warranties that are not needed, never used or not worth the money.

If you make a purchase such as a home, auto, computer or television, if you are accident prone, if you are a business owner, if you use a product daily for personal or business usage, or if you do not have the money to purchase a newer model consider purchasing a warranty or extended warranty.

Studies and surveys such as those from Consumer Reports have found that most products do not malfunction during the standard warranty or contract period. If the product does, the repair cost is either the same or a few dollars more than the cost of the warranty. If you have a warranty or are considering purchasing a warranty, here are some fantastic ways to evaluate warranties to determine if they are worth the money.

Check the Cost

The cost of most extended warranties range from 10% to 20% of the product sales price. Warranties that cost more than that are too expensive. For example, a $20 extended warranty on a $60 George Forman grill is not worth the cost. However a $150 warranty on a $1,900 computer is a more reasonable purchase due to the product complexity. The warranty cost is 7.8% of the total price and covers the cost of replacing parts.

Jan Rogers Kniffen, CEO of J Rogers Kniffen WWE, LLC, a consulting firm in the retail sector believes that warranties are not bad; they are just expensive. "You as a consumer will price comparison shop for the TV, but once you are buying the TV you will not price comparison shop for the "gold plated" HD cables, or the extended warranty, so the retailer has the opportunity to make a healthier profit on those items."

Research the Company

Research the company using sites such as the Better Business Bureau or perform a google search “company name and negative reviews” to get feedback on the reputation of the company.

Ask for Referrals

Ask relatives, friends, colleagues, neighbors or business partners for referrals for warranty companies.

Compare Plans

Compare plans when purchasing a warranty. Determine what is covered and what is not. Identify guidelines and restrictions, the location of authorized service providers, the location of the nearest service repair shop and repair costs.

Consider the Duration

Consider how long the warranty will last. Warranties vary in duration. Some last a few months while others may last for 2-5 years depending on the type of item purchased.

Determine Repair Costs

Determine if technicians are hired on behalf of the customer of if the customer can select their own. Determine if the company will charge a service fee, if the product has to be delivered to the retailer or to an authorized service provider for the repair and if shipping costs will be charged. Document all communications with the company and ask for confirmation letters of all conversations or agreements.

Understand the Language

Some warranties such as home warranties are marketed as warranties but are actually service contracts that insure against the repair of products such as plumbing, appliances, or electronic devices. Call the company to ask for clarification or check their website for additional information. In addition, read the warranty information that was provided when the item was purchased.

Use Insurance

In some instances an insurance policy may be used to cover expensive repairs instead of a warranty. Warranties should be used for repairs you can pay for on your own. Insurance should be used for repairs you cannot afford to pay for on your own. In addition, warranties may not cover expensive repairs.

Verify Coverage

You may already be covered. Many credit card companies provide warranties or extended warranties for purchases made with a credit card from one year from the date of the purchase. Verify the warranty coverage to avoid purchasing double coverage. Some extended warranties overlap manufacturer warranties so make sure the extended warranty coverage begins when the warranty coverage ends.

Determine the Product Life Span

Compare the age of each item covered in a warranty versus its average life span. For products such as cell phones which issue new versions every one or two years and quickly depreciate in value, purchasing an extended warranty does not make financial sense.

Check the Cancellation Policy

Determine if the warranty has a cancellation policy, determine the terms and the cost of cancelling early if the warranty was purchased along with the product.