Is Buying An Extended Warranty Worth It?

You’re about to drop several thousand dollars of your hard earned money on a big ticket item.

Your adrenaline is pumping, your heart rate is slightly elevated from excitement commingled with mild amounts of fear and second thoughts.

You’ve researched and agonized over this purchase.

You’ve finally made up your mind to go through with it.

Then the sales associate asks that question—“would you like to purchase an extended warranty?”

What do you do?

The short answer:

If spending a few extra bucks to protect that new electronic gadget helps to chase away boogey man and allows you to sleep at night, then by all means, spend the cash.

The Long of It:

The decision on whether or not to buy an extended warranty depends on whether you approach it emotionally or economically.

According to US News and World Reports, a consumer who is able to detach emotionally and set their fears and misgivings aside, can save quite a bit of money by declining the warranty. These warranties are rarely used and not worth the extra cash.

“From a purely economic standpoint, it usually doesn’t make sense to buy an extended warranty,” says Rajiv Sinha, a marketing professor at the W.P. Carey School of Business at Arizona State University.

So, I hear you asking, is it ever a good idea to buy the additional warranty or extended service plan?

That depends.

Here are a few things to consider:

The existing warranty

The warranty you are purchasing is most likely going to overlap with the free one. Paying the extra money will not buy a whole lot more additional coverage. So in essence, you wind up paying for something that you are already getting for free.

You should clearly understand what is covered under the free warranty and also consider the duration of the warranty. Most products are typically covered for a year or longer.

The fact that it’s not really a warranty 

The Federal Trade Commission (FTC) warns consumers, to be sure they fully understand the terms and coverage before signing any extended coverage contract. The agency also stresses that what consumers are actually buying is not an extended warranty but a limited “service contract.”

According to the FTC, “A service contract is a promise to perform, or pay for, certain repairs or services. Although a service contract is sometimes called an extended warranty,’ under federal law, it is not a warranty. A warranty comes with the original price of the item, whereas a service contract costs extra. It is mainly this separate and additional cost that distinguishes a service contract from a warranty.”

The warranty or service contract may not cover what you think it does 

Consumer Reports National Research Center conducted a survey in late 2013 and found “that 55 percent of owners who purchased an extended warranty hadn’t used it for repairs during the lifetime of the policy. And, on average, those who did use it spent hundreds more for the coverage than they saved in repair costs.”

Costs Vs. reliability 

In most cases, paying for a simple repair should cost less than purchasing an extended warranty. Also, keep in mind the product you are buying. Large, expensive items such as washing machines, large screen TV’s and refrigerators are generally reliable. If something does happen—unrelated to mishandling—the original warranty will most likely cover it.

New products vs. pre-owned

Experts agree that purchasing an extended warranty or service plan on new products is a waste of money. It is however, a wiser choice when purchasing pre-owned merchandise. In that case, one must consider the age, condition and wear and tear the item has already sustained in order to adequately assess if spending the extra cash makes sense.

Final Word:

Making a large purchase is an emotional decision. The decision to purchase additional coverage however, doesn’t have to be. If you are able to set aside your fears and consider it’s worth from an economic standpoint you could save yourself from spending cash unnecessarily. In the end, all an extended warranty really buys you is a bit of peace of mind.

And Peace of Mind costs.

Featured image by Andrew Magill on Flickr. Available for use under Creative Commons 2.0 license.

Consumer Expert Denise Hill

Denise is currently a writer and editor for a federal agency in Washington, DC. She is an open-minded free spirit always ready for new adventures. She enjoys traveling and relishes being exposed to alternate points of view. Faith, family and finances are the core of her value system. She follows her own path and marches to her own beat. She is a dream chaser and with her husband and best friend by her side, she plans to take over the world.