Should You Buy the Extended Warranty?

Consider these points if you’re on the fence about getting an extended warranty.

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by NEA Member Benefits

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A new car, a new TV, new washer, new dryer, new refrigerator—we love new stuff, especially new stuff that’s big and expensive. But as you’re signing the dotted line on that big purchase, you may hear a little voice in the back of your head: “What if it breaks? What if this used car is actually a lemon? How much is that gonna cost me?” That’s when the salesperson says, “We have an extended warranty available. Would you like to buy it?”

The more expensive a product is, the more tempting it is to buy an extended warranty, sometimes called a service contract. It’s like buying insurance for your purchase—one of those things you think you should buy and hope you never have to use.

There are extended warranties available for all kinds of products. Cars in particular are popular warranty candidates, as are appliances such as ovens, refrigerators and microwaves. Electronics large and small often have extended warranties available, including TVs and laptop PCs. Even video games have them! But do you need those extended warranties? Is the extra cost worth the additional peace-of-mind?

The short answer is “no.” Mark Kotkin, Director of Consumer Reports National Research Center, says that “extended warranties tend to be a bad deal for consumers” because “most repairs do not occur during the limited time period covered by the extended warranty.” Sheila Adkins, Community Outreach Manager for the Better Business Bureau, says that it’s important for consumers to do the math when considering an extended warranty because “the cost of a service contract may be more than the value of the item being purchased.”

That said, if you are still on the fence about getting an extended warranty, consider these points:

1. Does your credit card, or other affiliation, already cover you?

If you buy something with your credit card, the credit card may provide a kind of warranty of its own. Adkins says you should check with the card issuer to see if the company offers purchase protection as part of your card’s service. If it does, you shouldn’t need an extended warranty—your credit card issuer has you covered. Another example is Costco: Costco extends the manufacturer’s warranty on new televisions, projectors and computers to 2 years from the date of purchase (this is only available to Costco members).

2. Do you need the extra peace-of-mind?

Some consumers will insist on buying an extended warranty simply for the added peace-of-mind, and there are some situations in which one should consider buying one such as for a laptop or other high-tech product. Adkins says that if you buy an expensive item, an extended warranty may be worth the cost if you think it may be difficult to pay for future repairs that the warranty would cover. Kotkin says that if you buy a brand of a product that has a reputation for needing repairs, you may want to consider a warranty if the warranty is inexpensive and comprehensive. 

3. Does the extended warranty overlap existing coverage?

If you think you do need an extended warranty, make sure it doesn’t overlap with the product’s standard warranty. Kotkin recommends that consumers who insist on purchasing an extended warranty make sure they know how the warranty is different from the standard warranty that may come with the product. Make sure you understand exactly what the extended warranty does, and doesn’t, cover. You should also know exactly when the extended warranty’s coverage will begin and end.

4. Are you buying a laptop or other high-tech device?

There’s one product in particular that may be worth an extended warranty purchase—a laptop. Many people rely heavily on these expensive, fragile machines, and can ill-afford to have a breakdown. Kotkin says Consumer Reports generally recommends that consumers skip laptop extended warranties because they tend to be very expensive. Having said that, if you travel everywhere with your notebook, or have no desire to troubleshoot problems yourself, it may be worth the extra coverage. Kotkin says Consumer Report’s latest research shows that some laptop extended warranties do offer significantly better tech support compared to the free tech support services that a laptop maker will otherwise have available.

Spending a lot of money on a new product shouldn’t feel like a gamble, and in the vast majority of cases, it isn’t. All products break down eventually, but it’s rare for a product to break during a warranty’s coverage period. So relax, enjoy your new widescreen TV. Chances are by the time it breaks down, you’ll be ready to buy a new one anyway.

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