Ask Stacy: Are Service Plans and Extended Warranties Worth It?

Should you buy a service contract or extended warranty? My answer has always been no. These days, however, I’m less sure. Here’s why.

Over the 20-plus years I’ve been doing consumer news, I’ve done several stories about extended warranties and service contracts. They’ve mostly been negative.

My opinion has always been these add-ons are merely profit centers for retailers and rarely worth the money.

Recently, however, I began questioning that advice, not because the service contracts are better, but because some products they protect are getting worse.

Here’s a look at this week’s reader question.

Are extended service plans for washing machines and dryers worth the investment? We bought a new Maytag electric dryer six months ago, and now we are receiving mailings about buying a service plan to “protect our investment.” — Kathy

Before we delve into this topic, here’s a related TV news story we recently shot. It’s about whether full home warranties are worth the money.

Now let’s address extended warranties and service plans.

Are service plans worth it?

We’ve all been there: You’re at the checkout buying anything from a cellphone to a dishwasher, and the salesperson launches into a new pitch. “Don’t you want an extended warranty/service plan to protect you from expensive repairs?”

There’s a reason these pitches are so intense. These post-sale policies come with markups of 50 percent or more, typically a much higher profit margin than the retailer makes from the product itself. That profit margin alone should tell you something — namely, lots more money is being taken in than is being paid out for repairs.

Other reasons to just say no:

  • You may be getting duplicate coverage. Most products come with a manufacturer’s warranty. You may be paying twice for the same coverage.
  • Products don’t break during the warranty period. Everything’s going to break eventually, but according to reliable sources like Consumer Reports, it’s more often when the product is outside the time frame covered by the service plan.
  • Repairs might be cheaper than the service plan. If fixing the problem is less than the cost of the service plan, even when you “win” by having the plan, you still lose money.
  • You might have coverage elsewhere. Pay for your purchase with some credit cards and you’ll get a free, automatic extension of the manufacturer’s warranty. Did you check before you bought?

They don’t make ’em like they used to

My parents bought a GE refrigerator in 1973. If memory serves, they kept that refrigerator for at least 25 years, and it needed few, if any, repairs.

I bought a GE refrigerator in 2006. I’ve had a repairman out here twice, and I’ve replaced the ice maker twice myself.

Why the difference? In a word, computers. Air conditioners, washers and dryers, and refrigerators are all examples of appliances that used to be all mechanical, but now contain circuit boards.

Delicate electronics + moisture + heat = repairs

This isn’t just my theory. I talked to both an appliance and an air-conditioning repair guy, both with 25-plus years of experience, and both independently said the same thing: They really don’t make them like they used to. Both cited cheap, Chinese manufacturing and electronic components as primary reasons.

Coincidentally, both said the products they respectively service, refrigerators and air conditioners, used to last decades and now last about five years before needing repair.

I did a story about this last year. See “Why Modern Appliances Don’t Last.”

So, should you spring for protection?

Despite the fact that some of today’s products aren’t as good as yesterday’s, in most cases you still shouldn’t pay for extended protection for the reasons cited above.

Like most things in life, however, it’s not black and white. Additional things to consider:

The product. Some products fail more often than others. Consumer Reports does an annual survey and offers repair rates (subscription required) reported by consumers on everything from appliances to electronics. The differences among brands and types can be dramatic. For example, 31 percent of those surveyed with side-by-side refrigerators (like mine) said they needed repairs, while only 11 percent of those with top freezers (like my parents’) did.

As for electric clothes dryers, the subject of this week’s question, the Consumer Reports survey found that LG was the most reliable brand. Overall, about 12 percent were reported as needing repair.

The more likely a product is to fail, the more valuable the extended service plan. However, a plan covering something more likely to break will probably cost more as well. So the best idea is to do this type of research before shopping and avoid products with higher failure rates.

Who’s using it and how. Giving a computer to a 5-year-old, or someone who acts like one, is much riskier than giving one to someone responsible. A computer that sits on your desk is less likely to need repairs than a tablet you take to the beach.

The cost. Don’t even think of buying an extended service contract or warranty without researching prices beforehand. If you have the right credit card, you might get additional protection free. You might also find it cheaper from another retailer. And if you’re getting the hard sell months after the purchase, like the reader who sent in this week’s question, be especially careful.

The details. You need to read the fine print to see what’s covered and what isn’t. Do you have to pay to send it off for repairs? Are you paying for coverage that overlaps with the manufacturer’s warranty? Does your homeowners coverage offer some of the same protections? Does the company have a spotty record when it comes to paying claims? What happens if the warranty company goes belly up?

In short, never impulsively buy this type of protection at the point of purchase, or thereafter. Understand what you’re buying before you buy it.

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter. If you’re not subscribed, fix that right now by clicking here.

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

Got any words of wisdom you can offer for this week’s question? Share your knowledge and experiences on our Facebook page.

Stacy Johnson

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  • rrbinns

    Love the part of this article about “They don’t make ’em like they use to,” that part truly hit home. We decided to replace our 30-year old Amana Radarange Touchmatic microwave. My husband had received it as a Christmas present from his parents in 1985. They had purchased it at the Amana outlet store. Nothing is wrong with this microwave, we just thought it was getting old and probably should get a new one. On June 20, 2014, we bought a Sharp Carousel microwave oven (R-431ZS). We went to use this new microwave, for the 1st time, on June 21, 2014 and guess what doesn’t work? The new microwave! It powers on, the timer starts and runs, but it doesn’t heat or defrost food! So we’re returning the new microwave and decided keep using the old, reliable 30-year old Amana microwave until it quits working.

    • CharityLove

      I got rid of my trusty old Amana because the appliance dealer convinced me that it was so old that it was leaking microwaves and that we would likely get cancer from that. Learned since that’s not true. I’ve had good luck with my Sears Kenmore microwave that replaced it, though.

      • Don Lowery

        Easy way to check a microwave for leakage if anyone tries to sell you a new one. Put your cell phone into it and close the door…but do nothing else…don’t turn it on. From another phone…call the cell in the microwave. If it rings…you need a new microwave because it’s leaking. If it doesn’t…keep using it. The reason for this is your food is being cooked with radio waves. That’s why if it’s leaking…the phone rings because the antenna in your phone is actually able to receive the cell signal.

      • hotstock

        Unsavory appliance dealer trying to make an unnecessary sale. Microwaves are as thick as a pencil (notice how those protective grills in the window of newer models have larger holes?). This reminds me of people buying replacement blades for Norelco triple-header shavers even though the blades are self sharpening.

  • I seriously consider extended warranties on anything that costs more than a few hundred dollars anymore for two reasons.

    So-called warranties that come with most products are nearly worthless.
    If you want a reasonable guarantee on a product you have to buy it.

    Example: I bought a Samsung television a couple of years ago and it didn’t quite last a year. A tech was sent to the house to fix it, told me it could not be repaired. It would have to be shipped back to the factory, at my expense and they would decide how to proceed. Since this was a 60 inch plasma I didn’t bother to see what that would cost me. I’ve checked into other items similar to this and have yet to find a warranty that isn’t filled with stipulations.

    More recently I bought a new Toyota Prius. The electronics in this car are far beyond anything the average person could understand, let alone hope to repair. I asked the salesman four times what was covered with this complex system. He told me everything (electrical) for 36 months/36,000 miles. When we got to the point of finalizing the sale, it was pointed out that at least 50% of the parts are not covered with the original warranty. They are considered ordinary wear parts, even though they are part of the computerized system. The extended warranty covers everything.

    The point of this is, manufactuers warranties are a crap shoot. We live in a throwaway society. And if you fail to buy a warranty, you may be stuck with an outrageous repair bill or pitch out the product and buy another one.

    • Gars

      When I recently bought a Honda CRV I was offered an extended warranty no less than 3 time, each by a different person at the dealership, and (AMAZINGLY) each at a subsequently lower price. After leaving the dealership, I found the extended Honda warranty online for $700.00. That’s 500 less than the lowest price the dealer offered me. It’s all a game in which you’re the mark. Due diligence!

  • Jason

    Extended warranties are like casinos, people only remember and talk about the times that they “win” and forget about all the money they have lost over the years. Extended warranties and service plans are just another name for insurance so the same rules apply. It is only wise to purchase insurance on things that a person cannot afford to replace on their own. Items like cars, houses, the income of the primary wage earner in a family. The average person will lose money purchasing this type of insurance but the purchase makes sense because a lose would be catastrophic without insurance. For anything else just say no.

  • hotstock

    Given the electronics in new appliances, those service warranties are helpful. The circuit board behind the keypad on a microwave oven can cost upwards of $600; replacement doors for refrigerator/freezer uprights, $2,000. Thank goodness for our five-year service contract. And I renewed it for another five years when it expired.

    • ModernMode

      Most if not all microwaves are now comodities. You can buy a new one for a lot less than $600. And I can’t imagine why anyone would have to replace an entire refrigerator door.

  • Kathleen Barker

    The best extended warranty I ever bought was for an Apple iTouch purchased at Wal-Mart for my 9 year old granddaughter. She spilled liquid on it about 9 months after we bought it. The Wal-Mart repair/replace plan was only $17 for two years of coverage and they sent her a gift card for the full purchase price!

  • Lorilu

    They sure don’t make them like they used to. A couple years ago, we purchased a new LG top-load washer. After two or three weeks, the lid would not unlock after use. Called their repairman, who took the whole top of the machine apart, rejiggered something but didn’t put in any new part, and went on his way. Two or three days later, same problem is back. Repairman comes back, but without the part–just a diagnosis call. Then he comes on a pre-arranged day to tell me that he still doesn’t have the part. Finally, he comes back with the part (a circuit board, I think), takes the whole top of machine apart again, and replaces the old part. So, four days of my time lost to fix a new machine. Lid still sticks. In addition, it is impossible to get hot water in the machine, even when set for it. Best you can do is lukewarm, and clothese come out tangled. What I wouldn’t do to have back my old Maytag that was left behind when we moved.

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