Extended Warranties: 4 Questions to Ask

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From RVs to TVs, no matter what you buy these days, you get the hard sell for an extended warranty. Here's how to know whether to bite.

As many guys will tell you, we tend to get attached to our barbecue grills the same way we get attached to our dogs.

Let’s face it, a good barbecue grill, like a good dog, is something to be revered, and as such it’s always tough for their owners to recognize when it’s time to finally say goodbye. It’s a reality that I had to deal with for my last outdoor grill.

The Honeybee and I were cleaning up the backyard in preparation for barbecue season when she pulled me aside and pointed to my greased-over, rust-eaten grill sitting nearby.

“Don’t you think it’s time?” she asked.

I decided to play dumb. “Time for what?”

“The barbecue. I know you love it – but its best days are long gone.”

“What are you talking about, Honeybee? That grill has at least one good summer left in it. Maybe even two!”

Of course, I eventually came to my senses – but having to take my faithful old barbecue on a tearful walk to the curb still left me somewhat, well…traumatized.

Even so, after a brief mourning period, I eventually mustered up the fortitude to leave the house and buy a new grill.

At the checkout counter, the cashier asked me if I would like a two-year extended warranty for my $399 grill for $65 more. I thanked her, but politely declined.

It used to be that extended warranties were basically limited to big-ticket items like cars and kitchen appliances. Now it seems they’re available for almost everything we buy. No mystery: Extended warranties are big money-makers, with profit margins as high as 50 percent.

Here are four basic questions you should ask yourself to determine if an extended warranty makes sense for you:

1. How expensive is the product?

If your clock radio craps out, you’ll most likely just throw it away and get a new one. You can’t say the same for an automobile – at least not a newer one. Generally speaking, the more expensive the product, the bigger the potential repair or replacement costs.

2. How reliable is the product?

If a product is going to fail, it’s usually going to do so within the manufacturer’s initial warranty period. Products that survive that initial period tend to last a long time. The key is in knowing if the product you’re buying is highly reliable – if it is, then it makes little sense to gamble on an extended warranty. Current three- to four-year failure rates vary depending on the product, but range from 37 percent for side-by-side refrigerators, to 15 percent for clothes dryers and iPods, and 3 percent for flat-panel television sets.

3.  Who’s using the product?

Product reliability numbers assume operation under normal conditions – but even highly reliable products will break when subjected to users who don’t handle them properly. When my son, Matthew, was younger, he was extremely hard on his electronic games and music players, so we always bought the extended warranties. Sure enough, we made claims (sometimes multiple times) on almost every electronic device he ever owned.

4.  How much is the warranty?

The more expensive the warranty, the more sense it makes to simply take your chances. Generally speaking, you should avoid an extended warranty if it’s more than 20 percent of the product purchase price, including taxes.

Finally, before buying any extended warranty, always make sure you do the following:

  • Check your credit card. Believe it or not, many platinum and gold credit cards offer extended warranties free.
  • Shop around for the best price. The cost of extended warranties can vary between retailers for the exact same products.
  • Determine if the warranty includes shipping charges. Many warranties don’t cover shipping charges if the product needs be sent in for service. This can get expensive for large items like televisions and computers.
  • Beware the fine print. For example, a two-year policy may give you only one year of additional coverage because extended warranties often take effect the day you purchase a product.

Conventional wisdom suggests extended warranties aren’t a good buy, unless perhaps for an automobile. But the decision isn’t always so black and white; sometimes extended warranties do make sense.

The trick is knowing exactly when to pull the trigger.

Stacy Johnson

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