Should You Buy an Extended Warranty

You've purchased a new car, a computer, a washing machine or a fancy new electronic gizmo, complete with a standard one-year manufacturer's warranty. Just before you plunk down your cash, you have one last decision to make - whether or not to pay extra for an extended warranty.

According to the salesperson, an extended warranty will protect you if the car, computer or gizmo becomes defective once the standard warranty expires. It is a written promise that the manufacturer or store will repair or maintain the product for a certain period of time beyond the manufacturer's warranty.

Should you buy one? Not necessarily.

First, see if you have any alternatives. You may be able to get similar protection if you purchase the item on your credit card. Many credit card companies now cover repairs for longer than the original manufacturer's warranty.

Next, consider the item.

Extended warranties on automobiles, for instance, may have so many loopholes, you'd be better off without them. Many only cover components that make the vehicle run, such as the engine, and don't cover the components that are most likely to need work, such as the brakes. Some require you to pay a set amount out of your own pocket, or have the vehicle inspected by an adjuster before the protection kicks in.

Besides, you may trade your cars in every couple of years, making an extended warranty unnecessary.

You should also think twice before buying extended warranties on low-end electronics and appliances. According to Consumer Reports, the Better Business Bureau and other consumer watchdogs, these items last longer these days and cost less to repair. The October 2001 issue of Consumer Reports, for instance, included a survey of readers' opinions on whether extended warranties are worthwhile. It found that it costs less to repair items such as lawn tractors, mowers and vacuum cleaners than to pay for an extended warranty.

So when is an extended warranty worth the money? Consumer Reports recommends you consider one for high-end products that are prone to damage and expensive to repair, such as treadmills or notebook computers.

Even then, you should ask a few questions before you sign on the dotted line:

Does the extended warranty cover the time after the manufacturer's warranty that comes with the product?
Will someone come to your home to fix the item, or will you have to cart it off to a specific store, factory or dealer?
Who will honor the extended warranty if something goes wrong? Many stores sell extended warranties but send you to another store or the manufacturer if you make a claim.

Can you transfer the policy to another person if you give the item away or sell it?

Will you have to pay for the repair and then claim the money from the insurer?

Does the warranty cover both parts and labor?

Will new or refurbished parts be used to do the repair?

Can you buy an extended warranty directly from the manufacturer rather than in the store?

What happens to your coverage if the store or the manufacturer goes out of business?

Extended warranties are a profitable sideline for retailers. In fact, the United Kingdom recently announced plans to protect consumers there against stores that overcharge for extended warranties and manufacturers that go out of business. No such protection exists here in the U.S.

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