How To – Understanding Extended Product Warranties – Are They Worth Buying?

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    It seems whatever you buy at the store there is always a sales person trying to sell you an extended warranty so how do you know if paying that extra money is worth the paper they will hand you?

    First you should understand your basic consumer rights. In most areas and even if you purchase your products online you will have the right to return a product if it is not working within a set number of days. Some businesses provide extremely long return periods and they may not even require that the product is malfunctioning to accept the return.

    The common return time is often 7 days from purchase with original receipt and you must return all portions of the product. Target Stores as of last check have a 60 day return policy and businesses like Home Depot and Walmart may decide to accept your return for longer periods of up to a year or more. You need to check with every business and companies with offices in different states will process returns differently across their chain.

    This is not to say that you can always return your purchases. Some items like personal clothing can not usually be returned and in some states they may allow businesses to refuse returns all together. An example would be buying a used car from another person and not a business. If the sale is considered ASIS then you really have no right to return the item unless you can prove you were taken on the deal. However Fraud by individuals is relatively hard to prove.

    You must know your rights before you enter into any contract.

    After the initial return period has expired on a purchase most manufacturers will provide an extended return warranty. Offering warranties is usually at the option of the business and they can be anywhere from 30 – 60 days up to the lifetime of the product.

    Lifetime Warranties offered by manufacturers usually do not cover your total cost of replacement. Often you will see a limitation of parts only and you pay the cost of labor, shipping and other related costs.

    Why do companies offer lifetime warranties? Because they examine your returned item for faults and then use this information to construct better products. Your broken TV or Tool becomes part of their research and design experiment and where else could they get access to items used in the real world that break down other then by offering an extended warranty.

    Pro-Rated Refunds
    Lifetime warranties are also likely to be pro-rated meaning they take the time they expect their product to last and divide it into the cost. Car batteries are often pro-rated and if the battery is expected to last 5 years and your battery fails at 4-1/2 years you can expect only a few dollars back on exchange for a new one.

    Paid Product Protection
    So, we have covered some of the free ways you can get your broken item fixed, replaced or a refund. What about the paid warranty services that many retailers can offer are they worth buying if you are already covered by a manufacture warranty?

    Yes and No

    First you should examine the warranty and see if it provides any additional coverage that a manufacturers warranty doesn’t.  For instance a major warehouse dealer of water heaters offers an extended warranty at the time of purchase. If you purchase the 12 year hot water heater the manufacturer will cover the water heater on a pro-rated refund rate for 12 years.

    If you buy the store insurance and you have the store contractor install the water heater they will cover the labor to install the water heater for 12 years + 2 more years after the manufactures warranty runs out. They will also cover the cost of the water heater in total for the first 12 years and pro-rate for the final 2 additional years.

    Considering a $500 water heater could cost $250 to install you will save money on the labor for the full term of the insurance. You will also get total replacement for the first 12 years while the manufacture only provides partial refunds.

    The cost of the insurance at time of purchase is 10% of the purchase price or $50.

    So is it worth saving $750 for 12 years as apposed to only a portion of the total cost of replacement?

    Yes, in this case it probably is.

    Lets look at another example.
    You purchase a Television for $100 for the kids room or basement.  You know the quality of the product may be lacking but it seems to be a good sale and since you have the money it could be worth it to get the kids a tv so you can watch the game on the weekend.

    The sales person offers you an extended 1 year after the manufacturer 3 year warranty for $20.

    The warranty is pro-rated and by the end of the 5 year period the most you will get back is the $20 you paid for the insurance.

    You also know that in the next 5 years televisions will increase in features and quality.

    This is probably not the best deal.

    The item you are buying is not a throw away product but it is not worth the extra cost of insurance. You understand that after 5 years of your kids beating on it you will be lucky if it works but willing to replace it if it doesn’t.  Not to mention warranties do not cover wear or abuse so the probable cause for its death most likely won’t be covered anyway.

    Who Covers The Warranty?
    You should check very closely when you buy an extended warranty because many stores use an outside company to sell this type of insurance. If a third party must be involved and you can not debate the problem with a store manager or product manufacturer then you may end up out of luck even if you are in the right.

    You should also understand who will accept or service the product. If you need to mail the item to a regional service center the cost of mail might be more then any amount you save after the repair.

    I once found a way around this by planning a trip to NYC and bringing a broken monitor along with me to be serviced in Northern New Jersey. I dropped it off in the morning and picked it up later that day and saved myself about $70 in shipping which was just less then the cost of gas. And I got a day in the city, unpaid of course.

    Final Note
    Extended warranties are worth it when you factor in all of the additional costs and can justify that you might come out on top if a repair is needed but you should know that retail businesses make a large proportion of their income off of these warranty addons.

    A friend that worked at a national electronics store that just went out of business told me that 25% of his departments revenue for the month was on extended warranty sales and the company pushed him to get customers to buy the coverage.

    For the most part even if a customer is covered business figure that they will never make use of the warranty. If the coverage is on a small electronics item they will have most likely bought a new one and if the coverage is on a larger item like a water heater they most likely will have lost their paper work or moved before the item needs repair.

    So be careful but don’t shy away if it is truly a good value.

    Most of the time you can take the paper work home and read it for a few days before you purchase the coverage. If you feel pressured its likely that you are being ripped off.

    And it is always important to shop around for products to understand your return rights and warranty offers. If two stores offer the same product but one adds extra value with longer return times then you know where to shop.

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