First, let's distinguish extended warranties from "homeowners' warranties." Homeowners' warranties often cover multiple systems of a home, regardless of their age, condition, and past history. They provide peace of mind and can
often be the clincher to close a sale.
speaking, extended warranties benefit the
company issuing the warranty more than the
person buying the warranty. If that weren't
true, the companies wouldn't sell the warranties
at all. Knowing that extended warranties
are a profitable venture for the seller
is important when deciding whether to buy
warranties also don't cover the most trouble-prone
years of an appliance's life. When an appliance
has a failure, it tends to be either very
shortly after it's put into use, or several
years after it's been used. The time between
six months old and five years old is usually
the most trouble free time.
give a one-year warranty on most appliances.
They want to cover the immediate failures
because those failures reflect poorly on
their company. Extended warranty companies
know that if an appliance makes it past
the first year, there will be very few and
most likely no claims for the rest of the
term of the warranty. And, most warranties
don't cover appliances beyond five years.
aren't extended warranties just like the
insurance you buy for a car or a home? No.
Extended warranties are often sold as if
they were a form of insurance. However,
they're quite different for these reasons:
Extended warranties usually require a long
term, such as a year, two or three.
They only cover the appliance itself, whereas
car and home insurance often covers external
Extended warranties are usually not offered
for the entire life of an appliance.
There is limited competition. You can price
shop warranty plans, but most people aren't
aware of this.
Warranties usually must be purchased when
an appliance is new.
They have a poor cost-to-benefit ratio.
a typical appliance repair is around $120,
you must determine whether the cost of the
warranty minus any required deductible is
a good investment. If the cost of the warranty
is more than 75 percent of the repair cost,
buying the warranty is probably not a good
use of your hard-earned money.
one thing extended warranties on appliances
do provide is peace of mind. If you have
had a miserable experience with an appliance,
and many people have, or if you don't like
the thought of getting hit with a large
repair bill at an inopportune time, an extended
warranty may be right for you. Just make
sure you do your homework before you buy
out from the appliance retailer whether
you can get the warranty the next week or
month - usually you can. If you can get
out of the store without it, you may later
determine that the cost isn't worth it.
If you feel pressured to buy it on the spot,
you may not give it the consideration it