BBB Tip: Should you buy that extended warranty?

When purchasing electronics, home appliances, and other devices, many retailers now offer an extended warranty, sometimes called a protection plan or service contract. But is the peace of mind worth the extra price? Here are BBB’s tips on what to consider before you purchase an extended warranty.

Determine whether an extended warranty is worth the cost

• Review the manufacturer’s warranty first. Since most products already come with a free manufacturer’s warranty, extended warranties often provide overlapping coverage you might not need. For example, if you buy a washing machine with a 5-year manufacturer’s warranty with decent coverage, do you need the 2-year extended warranty the store offers? Probably not.
  
  
• Check your credit card benefits. If you purchase with your credit card, you may already qualify for an extended warranty, free of charge. Typically, credit card companies add up to a year of additional coverage and cover the same defects as the manufacturer’s warranty. You’ll need to check with your credit card company to determine if they offer extended warranties and what kind of eligible purchases. Remember that some credit card purchases, such as computers and cars, will be excluded from this offer. If your credit card offers an extended warranty for your purchase, keep the documentation necessary to file a claim. This may include the original store receipt, the account statement that shows the purchase, and a copy of the manufacturer’s warranty.
  
  
• Consider the reliability of the device. According to checkbook.org, retailers typically keep 50 to 70 percent of the cost of warranties they sell, which is a huge profit margin. Usually, this is because most high-dollar items sold these days are very reliable. Do your due diligence and research an item before you buy it – especially if it is expensive. If most consumers report the item lasts for many years with no problems, chances are you don’t need the extended warranty.
  
  
• Read the fine print. Before you purchase any protection plan, read the fine print. You may find many exclusions make the plan less valuable. If you are worried about theft, loss, and water damage, but these factors aren’t covered by an extended warranty, or if you see phrases like “coverage excludes repairs due to accidental damage,” you may decide the coverage isn’t worth the cost.
  
  
• Understand how to make a claim. You’ll also want to make sure claims are relatively easy to file. If you purchase an extended warranty, know what documents you’ll need to file a claim and keep them somewhere safe. If the claim filing process seems highly complicated, ask yourself if you’d even use the warranty.
  
  
• Consider deductibles. Purchasing an extended warranty doesn’t necessarily mean any needed repairs will be free. Many extended warranties and protection plans, especially for cell phones, require consumers to pay a service deductible. Factor in the cost of the deductible, along with the cost of the plan, to decide if you’d be getting your money’s worth.

• Think about repair costs. Sometimes, the cost of a protection plan is almost the same as the repair cost, especially after you factor in deductibles. If that’s the case for the item you are purchasing, it may be a wiser financial move to set that amount aside for any possible repairs instead of purchasing the extended warranty.

• Find out which servicing companies you can use. With extended warranty plans, you will be limited to what companies can repair or offer replacements. Find out what companies you’ll be getting service from and how long it usually takes them to complete a repair. You’ll also want to know if the company offers in-home repairs or if you must ship your product to them. If they require you to ship the product, find out who is responsible for the cost of shipping.
  
  
• Shop around for the best price. If you decide an extended warranty is worthwhile for the product you are purchasing, don’t just settle for the plan your retailer offers. Many third-party companies offer insurance on electronics, home appliances, and more, even after you’ve already purchased.
  
  
• Watch out for scams. If you receive a robocall offering an extended warranty for your car, appliances, or other devices, don’t believe everything you hear. Extended warranty scams are commonplace and could rob you of your personal information or money. If you want an extended warranty, only do business with reputable retailers, not strangers.

For more information

Learn more about how warranties work and what your rights are at FTC.gov. Shopping for new appliances? Learn more about buying green in this BBB tip. Always look up consumer reviews and business ratings at BBB.org before doing business with a company.

If you’ve spotted a warranty scam, report it to BBB Scam Tracker to help other consumers stay vigilant.