EXTENDED  WARRANTIES:  Are  they  necessary  or  are  they rip  offs?

 

It makes sense to buy an extended warranty if you've just bought an expensive item, so you think to yourself, “Why not buy some additional insurance for it?” However, some factors can make extended warranties at best a bad idea and at worst, a downright rip-off.

 

We’ve all had the salesman’s high-pressure sales pitch to buy an extended warranty as part of purchasing a new vehicle or major appliance. But beware because those warranties aren’t cheap and may not give you as much protection as you think.

 

Salesmen selling extended warranties have become a regular ritual when consumers are purchasing electronics and other expensive items, and it usually comes at the end of the sale. First is the pitch, then the pressure to purchase a product's extended warranty. A less-than resolute shopper can end up being confused and panicky with indecision while thinking, “What if the TV or the iPod or the stove I have just purchased actually breaks? Does it make more sense to replace it? Is it a good idea to buy this kind of insurance and peace of mind in case it needs repairs?”

 

The first thing you should consider before you buy such a warranty is the length of time that the extended warranty covers. Most items have a manufacturer's warranty that covers malfunctions and product flaws. These usually good for one year. An extended warranty can last a few years, but it begins when you purchase the item. So a three-year extended warranty really lasts just two years, since the first year is concurrent with the free manufacturer's warranty that came with the item.

 

­B­ased on the law of averages, it makes more sense to not accept extended warranty offers. Statistically speaking, a product is more likely to break down within the free manufacturer's warranty, or years down the road—after the extended warranty has expired.

 

What does the warranty really cover? Is it the same as the manufacturer’s warranty? Is the contract already insured in full with no deductibles? Does the warranty exceed 10 to 15 percent of the total value of the product you’re buying. Does the salesman tell you that you need to purchase a warranty to qualify for a loan?  Car salesmen are often the worst offenders in extended warranty frauds.  

 

And most important, make sure that you get a copy of the warranty and not just a receipt that you paid for it. And when you do get the copy of the warranty, read the fine print carefully before you pay for the extended warranty. Don’t buy the warranty if the salesperson can’t produce a copy of the warranty within a reasonable amount of time.

 

Warranties are supposed to help if expensive items need repair or replacement after the manufacturer’s guarantee runs out. But sometimes the extended warranties only go for a few years when in fact the product is known to last far longer without a need for repairs and if the repairs are minor, the repairs are cheaper than the cost of the extended warranty. Check with the Internet about the reliability of the product. If it is free of the need of repairs for a very long time, don’t bother getting an extended warranty.

In the UK, the Office of Fair Trading (OFT) in February 2012 slammed the culture of extended cover sales for electrical goods, citing major pricing competition concerns in the £1 billion market.

They criticized the way sellers flogged the policies at the same time as the electrical goods. The OFT also discovered  a lack of relevant information and Pay As You Go warranties where shoppers fork out for a rolling monthly contract which are considerably more expensive than comparable fixed term warranties.

A consumer group found warranties that cost more than 80 per cent of the price of the item, with just a one-in-ten chance that the appliance will require repair over its first five years.

 

Here is an example of an extended warranty rip off that was taking place in the UK. Dixons Retail which owns Currys and PC World marketed its ‘two to five-year’ Premier Whatever Happens deals as a sensible insurance option. However, a five-year extended warranty on a washing machine with a relatively small chance of needing repair in the first five years would cost the consumer £170, when the initial price of the appliance was only £260. It turned out that in 2003, it was revealed that 47 per cent of Dixons pre-tax profits came from warranties and that Comet made up to 80 per cent of its profit from its sales of warranties.

 

In the rare case that your appliance or electronic device does break down, but you might have a tough time getting it repaired. That fine print on the extended warranty contract can be harder to interpret than the Constitution. (How does one define normal wear and tear?) And even when the defect is covered, you could find yourself at the bottom of a very long waiting list before the manufacturer eventually gets to repairing your item.

Obviously there are certain situations when an extended warranty might make sense such as when you purchase something expensive, such as a $6,000 Viking range, or an electronic device, like a plasma TV. But in most cases, consumers are better off skipping this option of getting a extended warranty.

 

There are exceptions of course. I bought a player/recorder for DVDs and also paid $20 for an extended warranty. It is a good thing I did. A little  over a year later, it wouldn’t work properly so I returned it to the store for a replacement. They didn’t have a replacement in the store and a month later, Japan’s manufacturer sent the replacement. Eighteen months later, I had the same problem and again I took it to the store. This time, they had an identical one for sale so they gave it to me as the replacement. I didn’t have to pay for the replacements because I paid $20 for the extended warranty.

 

Let me tell you of a four cases in Toronto and learn from the experience these three hapless victims had to go through. The first one paid $3,300 for a bonded leather sofa set at The Brick. She also paid $100 for an extended warranty. Three years later, she had to cover her sofa with a blanket because the leather was cracking and peeling off on a vertical panel behind a sitter’s back. When she complained to The Brick, she was told that her warranty didn’t cover bonded leather which is leftover pieces of animal hide blended together  seamlessly and glued to the fabric.

 

Another customer bought a $1,500 leather sofa that later began peeling on the headrest three years later. She also went to the same store the first victim went to and complained and she also was told that the warranty didn’t cover the bonded leather. Apparently, their extended warranties only covered structural damage such as the frames.

 

 

Another customer of The Brick was told by the saleswoman when she bought her bonded leather sofa that if anything happened to her sofa, it wouldn’t be a problem for her to make a claim under her extended warranty. Guess what? It was a problem. She was told that her warranty didn’t cover the bonded leather.

 

The fourth one paid $1,9oo for two bonded leather sofas that had been marked down from a higher price. The salesperson pushed the warranty on the buyer. He said, “Don’t worry. Even if your dog pees on your sofas, you are covered by the warranty.” She foolishly believed him. The bonded leather began peeling off of the sofas. And like the others, she was told, “Sorry. Your warranty doesn’t cover damage to bonded leather.”

 

Each of these victims believed that if anything goes wrong with their purchases, they are covered. It is sadly ironic that the coverage they paid for didn’t cover the only problem these victims had to suffer from so in fact, they wasted their money on their extended warranties that were as useless as toilet paper that had just been used on a certain area of one’s anatomy.  

 

What these four victims should have done and didn’t do was first, choose the item you like, then go home and look into the Internet to see if there are complaints about the item. If there are, choose another item. Second when you find an item you really like and there are no complaints registered about the item on the Internet, ask to see the extended warranty and study it to make sure how the item is covered. If there are exceptions of coverage in the warranty you are not happy with, then don’t buy the item and certainly don’t buy the extended warranty that goes with the item.

 

 

As I said earlier, buying an extended warranty does pay off. When I bought my 2006 used car, I paid quite a bit of money for the extended warranty. It is a good thing I did because in less than a year, a piston blew. The cost of the repairs was more than the cost of the warranty.

 

 

And finally, don’t pay $15 for an extended warranty for an item when you only paid $75 dollars for the item. You may have to wait a month for the replacement. If it is a mouse for your computer, do you really want to wait a month for the replacement? Of course not. It is better to simply write off the loss and buy another mouse in the store.