With shrinking profits and increasing costs, retailers are coming up with all kinds of ways to make an extra buck. And that includes extended warranties. They used to be reserved for big-ticket items like cars and TVs. Now, you can buy an extended warranty on just about anything… from video game headsets to electric toy cars to one-cup coffee-makers.
What is an extended warranty?
Basically it’s an insurance policy. The insurer agrees to pay for repairing or replacing the product after the manufacturer’s warranty runs out, typically for two to five years.
How do you know if you need one? Simple… You probably don’t. First, figure the cost of repairs. If the cost of fixing an item is less than the price of the warranty, you’ll likely lose money by purchasing an extended warranty. But there are exceptions:
- An item that is fragile and breaks easily. If your child is known to manhandle those video game headphones, and you find yourself replacing them every six months, a warranty might be for you. But you’re probably out of luck if the store that sells you the policy goes out of business.
- An item that has no history. A brand new vehicle model would be an example. If it is the first year for this particular type of car, and you’re not sure if the manufacturer got all the kinks out, go with the warranty.
- You are worried about future finances. If your job situation is shaky and you worry that down the road you may not be able to afford major repairs, a warranty may give you piece of mind.
If you decide to buy an extended warranty, read the fine print. You’ll need to find out:
- How long the warranty lasts.
- If the product breaks will it be replaced or repaired?
- What are your options (if any) if the store goes out of business?
- What are the limits of the warranty?
Remember, extended warranties are usually not worth the price. Manufacturers are competing globally. They have a lot of incentive to build products that last. Think about the big ticket items that you bought during the past five years. Are they still working well today? If you answered yes, you probably don’t need to buy extended warranties.
If you are thinking about buying a car, read this Suite 101 article about the best places on the web to look.
If you do purchase extended warranties, this article will show you how to store them, so they don’t get lost!
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