Are Extended Warranties Worth It?

A Fine-Print Policy

Extended warranty contracts can be serviced by the brand-name manufacturer, the retailer (if it's a large outfit), or a third-party administrator. For example, N.E.W. Customer Service Companies administers extended warranties for Amazon, OfficeMax, and Wal-Mart, among other companies. N.E.W. says it has 2200 call center employees, who handle more than 8 million calls per year. Knowing who actually administers the warranty could help steer you to worthwhile plans if a provider that has proven to be helpful also covers you at another store.

In our survey, the percentage of people who were glad they bought extended warranties from Dell, the only manufacturer to receive enough responses to rate, was substantially higher than that of people who bought them from retail stores. In theory, a manufacturer should know its products better and repair more of them than a store or service company. But you can't count on that to get better service.

Jack White, a retired civil engineer from Mesa, Arizona, says he bought a $450 HP Pavilion desktop PC from Circuit City, and then purchased a warranty extension from HP at the end of the standard term. He paid a pricey (given his system's cost) $210 for three extra years of coverage. When the PC started acting up, he called HP, which made him buy a set of restore discs (for around $30). The discs didn't fix his PC, so HP sent him a box to ship the system to a repair facility. Seven weeks and many calls later, he got the PC back--and it didn't work. He ended up taking it to a local store, which fixed it in a day. "The warranty is still in effect until 2008," says White, "but I doubt that I'd go back to them again."

Many retailers sell three-year warranties that add only two years of coverage to the manufacturer's standard one-year warranty. These companies can market their warranty plans as three-year deals because they provide service during the first year; you can call either the store or the manufacturer. Wal-Mart, which only recently began offering extended warranties in stores, is an exception: Its terms explicitly state that service plan coverage begins immediately after the expiration of the manufacturer's labor warranty, so you're not paying for dual coverage.

Another gotcha: With many plans, if your product is replaced under an extended warranty after the original has expired, the extra coverage is no longer valid. So if you buy a four-year plan on a TV, and it goes kaput and can't be fixed 13 months after you buy it, you'll get a new TV--but if that one goes bad, it's on you. Usually you'll find this under "exclusions" or in the details of the plan's "lemons" policy.

Some plans offer additional services beyond just repair, making coverage more worthwhile. For example, some plans from Best Buy and Circuit City cover one annual cleaning or preventive maintenance for VCRs, camcorders, and TV/VCR combinations (you must take the product into a store). Both retailers cover one lamp replacement for projectors and projection TVs. Certain plans provide technical support, too--after all, it's often difficult to know when tech support ends and service work begins.

Tip: You may have an extended warranty and not know it. Some credit cards extend the manufacturer's warranty, usually doubling the term. If the product has a problem, you call a number to find an approved service location; you usually have to pay for repairs up front and then get reimbursed, and you won't get extra benefits like technical support. See the links for information on Visa's extended warranty program, for details on MasterCard's, and for American Express's. Check your issuing bank's terms to see if you're covered.

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