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Are Extended Warranties Worth It?

Extended warranties offer consumers longer terms of coverage on service, repairs and replacements for appliances than the standard out-of-the-box warranty from the manufacturer. Are they actually worth the extra money, sometimes for extra coverage good only for another year or two? 

You can argue the benefits both ways. Extended warranties should be purchased for some items, including those that are difficult to repair or high-priced items that would be financially painful to repair or replace such as commercial-quality appliances including designer ranges and high-end built-in appliances. 

With other items, you’d be wasting your money. In the fast- paced world of home electronics, by the time the extended warranty expires, future technology will far outclass and probably be cheaper than the version you currently own. Digitaltrends.com reports that household electronics have seen great improvements in product reliability, making the price of most extended warranties about the same as a repair bill. 

Warranties are highly profitable for retailers and can deliver as much as 50% profit or more than the stores make on selling the appliance, but they can also run up the total cost of your washer, dryer, or refrigerator by as much as $126 for a major appliance or $21 for a small one, according to Consumerreports.org. Their data concludes that the likelihood of most home appliances needing repairs in the first three years is less than one in five.  And most defects will reveal themselves within the first year of use, while the manufacturer’s warranty is still good. 

If you’re tempted to hedge your bets, follow this rule – the cost of the warranty should be no more than 10% of the purchase price. Check to see how long the manufacturer will cover the product and under what circumstances. You may also have coverage under the credit card you used to make the purchase or through your homeowner’s insurance.  If you decide to skip the warranty, be prepared to shoulder the cost for assessment (service calls), repair (time in labor plus parts) and shipping.  Though it’s more of a hassle, this can be the most cost-effective measure. 

And that brings us to the home warranty, a blanket policy that is supposed to cover all systems and appliances within the home for a period of one year. In the hundreds of dollars, a home warranty is purchased by home sellers to sweeten the attractiveness of buying an older home to buyers, or by homebuyers to allay uncertainties over unanticipated repair or replacement costs. 

Are home warranties worth it? They can cost around $500 annually, depending on the services offered but they do not include the cost of service calls. Service calls can cost the standard rate of the service provider, as much as $75 to $125 per visit. 

Under a home warranty, the homeowner contacts the warranty company when there’s a problem with a major appliance or system, and the warranty company provides a participating repair affiliate to provide the service. 

While having a home warranty can be good protection, it doesn’t absolve the homeowner of proper maintenance. Major systems that are out of code will have to be brought to code at the homeowner’s expense. A system or appliance must be in good working order and properly maintained before it can be covered by the warranty. In addition, the warranty will either depreciate what it’s willing to pay or refuse to cover replacements for items toward or at the end of their natural lifespan. 

For that reason, Consumer Reports recommends self-insuring. Just as a homeowner’s association collects “reserves” for unexpected or high-dollar maintenance, you should set aside money for repairs and replacements, too.