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Extended Warranties: Should You Buy Them?

When is an extended warranty a good deal?


 
I'm sure you've had this happen to you: After having just selected an item to purchase, the sales clerk asks inevitably asks if you want to take an extended warranty. Should you buy this "extra protection"? The answer is, it depends.

An extended warranty is basically an insurance policy that promises to repair or replace the item should it need it for a certain period of time after the manufacturer's warranty expires.

By and large, extended warranties are very profitable for the providers because in most cases they are never used. But sometimes they are used, and when they are you'll be glad you bought one.

So when does it make sense to take the extended warranty and when is it a bad deal? Here are a few guidelines to help you decide:

  1. Does the extended warranty cover the most expensive parts of the item or are the major (expensive) parts excluded?

    If the entire item is covered (think bumper-to-bumper), then taking the extra protection can provide peace of mind in knowing you'll be covered if something should happen in the future.
     
  2. Is the cost of the extended warranty a considerable percentage of the cost of the item? It makes little sense to spend $300 to purchase an extended warranty for an item that costs $700.
     
  3. Is the item you're purchasing one that is prone to "tear up" with normal use?  For example, an automobile is a lot more likely to need expensive repairs in a couple of years than a modern television set.
     
  4. Does the length of the "useful life" of the item make buying an extended warranty a poor value? With computers becoming obsolete within a year or two these days, you're probably better off just staying with the manufacturer's warranty.
The bottom line: Sometimes it makes sense to purchase an extended warranty and sometimes it doesn't. Carefully considering the likelihood of having to use it and the cost to  benefits ratio can help make the buying decision a lot easier.
 

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