Should You Buy an Extended Warranty?

It's a question no shopper really wants to hear: “Would you like an extended warranty?”

But if you'll be buying electronics or appliances as gifts or just taking advantage of sales that stores are rolling out during the holiday season, odds are you’ll be asked this question by a salesperson or during checkout online.

Or you may be thinking about using a website that lets consumers protect multiple appliance and electronic purchases with one warranty and a single monthly fee, for less than the cost of buying a separate warranty for each item.

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Either way, you’ll be forced to answer some tough questions of your own: Do I really want to add an additional $100 or more to my purchases? Am I such a klutz, or is my family so clumsy, that I ought to buy an extended warranty as insurance? Is the product so likely to stop working properly one day that I need to pay extra now to ensure against its future breakdown?

What Extended Warranties Cost

Extended warranties typically add 10 to 20 percent to a product’s price — and salespeople earn fatter commissions when customers buy them. In exchange, you’ll have the peace of mind knowing that if your item breaks down, the warranty will replace it or pay for the repairs.

So, should you buy an extended warranty?

If you're a nervous Nellie and will feel better paying for the protection, go for it. Otherwise, there are three reasons to stay away from an extended warranty:

Odds are, you aren't going to need it. Extended warranties, which are generally issued by companies unrelated to stores selling the products or manufacturers, exist to make money for the retailers and the warranty firms. A recent Consumer Reports article, “Resist the Extended Warranty Pitch," said stores “keep 50 percent or more of what they charge for plans — more than they can make selling actual products.” But Consumer Reports has found that tech products and appliances rarely need repairs within three or four years, which means the warranties often go unused.

If most consumers with extended warranty plans filed claims for reimbursement, the warranty industry would cease to exist.

Chances are you already have a warranty. In most cases, the manufacturer will stand behind its product for a year. That isn’t very long, but an extended warranty might complicate things for you because of that contract, according to Jack Taylor, professor of retailing at Birmingham-Southern College in Birmingham, Ala. "These additional plans can frequently just be overlap," Taylor says.

That overlap might trip you up, as Kathy Spencer of Boston, learned a few years ago. The author of How to Shop for Free went for a warranty when she purchased a big bounce house for her children at Kmart. "I chose to buy the warranty, thinking the bounce house was a big investment and it will get a lot of abuse," Spencer says.

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Spencer thought getting the warranty was especially shrewd when the pump stopped working after its first use. She promptly called Kmart and then her problems began. "They said since my one-year manufacturer's warranty wasn't up, I had to go through the manufacturer before I could use the extended warranty," Spencer said. "I called the manufacturer, and they were no longer in business." After multiple calls and letters to the warranty company and Kmart, Spencer gave up.

MasterCard, Visa, American Express and Discover also offer free protection on some purchases made with their cards, typically for up to a year and with coverage up to $10,000. That’s the warranty strategy that Spencer now employs.

Apple products come with a one-year limited warranty, which seems to have a lot of admirers, judging from the chatter online. But you might not realize that Apple also provides customers with up to 90 days of complimentary telephone technical support.

Warranties aren't cheap. The Consumer Reports article noted that an extended warranty "can increase an item's price by a third or more, and on average, it costs not much less than what you'd pay for a typical repair."

What about cutting the cost of buying multiple warranties by using sites like GreenUmbrella.com or SquareTrade.com that say they’ll save you money by providing all-in-one protection for multiple products?

A Green Umbrella representative says her site is no longer taking new customers (something you wouldn’t know by visiting it), so that answers that.

Square Trade could be worth exploring, however, especially if you're an early adopter when it comes to tech products and purchase a lot of gadgets. Its warranty covers most new electronics, as well as large appliances costing less than $4,000. Its protection lasts one to five years and Square Trade reimburses you up to your purchase price for replacements and repairs. The site will quote you a price for the warranty once you say what you purchased, what it cost, and where and when you bought it.

Consumer Reports advises that if you're worried about a new, expensive product going on the fritz, your best strategy may be to self-insure. Sock away in a savings account the money you would have paid for a warranty. If something bad happens, you'll have the cash to cover some or all of your costs. If it doesn’t, you've saved up for a new, better replacement when the time comes.