Are Extended Warranties Worth It?

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Are You Being Served?

We've heard horror stories about extended warranties, so we were surprised to learn that most of the readers surveyed were happy with the service they received. Some 71 percent of those who bought coverage said they were glad they had done so. And 31 percent said they were "extremely satisfied" with service; 11 percent said they were "extremely dissatisfied." (See the chart, "Most Buyers Glad They Bought Extended Warranties", for individual vendor ratings.)

Overall, 48 percent of our survey respondents who purchased an extended warranty said they thought the salesperson described the coverage terms accurately. But Best Buy has seen some legal trouble on that score. Ohio and Wisconsin have suits pending against Best Buy in which they allege that the retailer, among other things, has misrepresented the attributes and benefits of its service plans, and that in many cases it has failed to honor its service plans. Best Buy settled a similar suit brought by New Jersey in 2004. The company would not comment on the pending suits.

Michael Billy, a computer design draftsman from Rochester, New York, got a good deal from Sears, which replaced his Kodak camera multiple times under a $25 extended warranty plan he bought.
Photograph: Michael Greenlar
Some companies fulfill the terms of service and then some. Michael Billy, a computer design draftsman from Rochester, New York, bought a Kodak DX3700 digital camera for $199 from Sears and paid $25 for an extended warranty. When the camera's media-card door wouldn't close a month later, Sears replaced the camera with a newer Kodak unit. Then it replaced the replacement when it broke. Billy went through two more Kodak models before asking for--and receiving--a comparably priced Nikon model as a replacement. He says, "When it comes to warranties, I listen to the pitch, price, and time limit, and what I like to hear is, 'We will replace the defective unit with another one of the same value or upgrade to the next model when possible.'"

Often, getting a replacement product is a relief, but in some cases it may work against you. Michael Baraz, an IT consultant from Chicago, purchased two Ericsson cell phones, one from Best Buy, the other from Circuit City, and paid for extended warranties for both. When the phones malfunctioned, the stores wanted to replace them with newer models, not fix them. Baraz had spent hundreds of dollars on accessories for the phones, so he didn't want new ones. He eventually paid Ericsson $100 to fix both phones, and doesn't know why the retailers couldn't have done the same thing.

The situation that Baraz encountered is usually addressed in extended warranty contracts: The companies, not you, get to choose how they'll handle your problem. In our survey, 43 percent of the respondents had their faulty devices replaced with new ones, while 38 percent had their devices repaired. Overall, 7 percent of respondents got refurbished units; Circuit City was far likelier to use refurbs (it used them in 15 percent of cases), while Best Buy had a refurb low of 3 percent.

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