Are Extended Warranties Worth the Cost?

Extended warranties offer consumers longer terms of coverage on service, repair and replacement for their home's appliances than the standard out-of-the-box warranty from the manufacturer. These warranties are highly profitable for retailers, as they can run up the total cost of your purchase by $100 or more, with very few claims being filed per year. Are they actually worth it?

You can argue the benefits both ways.

In the fast paced world of home electronics, by the time the extended warranty expires, future technology will far outclass today's. Digitaltrends.com states that household electronics have seen great improvements in product reliability, making the price of most extended warranties about the same as a repair bill. The same is true with most appliances today too.

Consumerreports.com agrees. 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.

That said, extended warranties should be purchased for some items, including those that are difficult to repair or high-priced items that would be painful to replace. These include high ticket items like a $6000 Viking gas range or pricey hi-definition plasma TVs, suggests smartmoney.com

Since extended warranties do make so much profit for retailers, they are very aggressive about selling them to customers. If you're tempted, follow this rule -- the cost of the warranty should be no more than 10% of the purchase price.

And 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. If you have a warranty option of $250 and you experience only one instance in the life of your appliance where it needs $100 of work, you could save $150, or 60%.

Ultimately the choice and risk are yours to assume. Extended warranties can be worth the cost in terms of peace of mind, but only if it's for a product you don't intend to change for a few years.

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