Should you buy the extended warranty?

When you make a major purchase like a car, TV, or appliance, there’s a good chance the salesperson will try to sell you an extended warranty to protect your new asset and to protect your finances from a costly repair bill. Should you say yes? We have insights to help you make the decision.

How does an extended warranty work?

An extended warranty, also known as a protection plan or service contract, is an optional service agreement you can purchase that extends the length of the manufacturer’s warranty. Many types of products have the option of an extended warranty, but they’re most often associated with costlier items that can be more expensive to repair, like cars, appliances, electronics, mobile phones and other tech devices.

In exchange for the extended coverage and protection, you pay a premium, either upfront or monthly. The cost and length of an extended warranty can vary, depending on the item and terms of the agreement.

What does an extended warranty cover?

Extended warranties provide coverage only for the item they’re purchased for, as specified in the contract. Typically, the terms are similar to the original manufacturer’s warranty. Most cover the cost of repairs or replacement parts if your item fails to work properly. If you need to file a claim, the warranty provider arranges to have your item repaired or replaced, based on the terms of your contract. You’ll want to be sure to keep your receipts and warranty paperwork handy in case you do need to file a claim.

Extended warranty pros:

• Peace of mind knowing that you’re likely not responsible for unexpected, costly repairs
  
  
• Convenience of not having to find a repair person on your own
  
  
• Repair work is done by a qualified technician
  
  
• Flexibility to choose a warranty plan term that fits your budget

Extended warranty cons:

• Cost of the extended warranty
  
  
• Coverage exclusions — most warranties don’t cover normal wear and tear, theft, loss or accidental damage; some may deny your claim if you don’t follow their maintenance instructions
  
  
• Possibility that you may not need to use it, or that repairs may be less than the cost of the warranty

Additional factors to consider before you buy an extended warranty

Extended warranties offer many benefits, but they might not make sense for everyone and for every purchase. Consider these factors first.

• Do you have enough emergency savings to cover potential repairs versus paying for the warranty?
  
  
• How long do you plan to keep the item? For instance, if you replace your car every few years, you may not need an extended warranty in addition to the dealer warranty. But if you plan to keep your car for at least 10 years, an extended warranty might make sense.
  
  
• Weigh the cost of the item versus the cost of the extended warranty. For smaller or lower cost purchases, the cost of an extended warranty might not be worth it.
  
  
• Check your credit card benefits. Some may provide extended warranty coverage for certain types of purchases made with the card, at no additional cost.
  
  
• Confirm what’s covered by the original manufacturer’s warranty, for how long, and when the extended warranty starts. If the time overlaps, you may be paying for double coverage.
  
  
• Read the fine print before purchasing an extended warranty so you understand the cost, what’s covered and what’s not, the term length and how the claims process works. Are there deductibles or service fees you might have to pay in addition to the cost of the warranty?
  
  
• Can you buy an extended warranty later? In many cases, you can purchase an extended warranty any time before the initial manufacturer’s warranty expires.
  
  
• Can you cancel an extended warranty after you buy one? Some extended warranties can be canceled, but check the warranty plan and provider to confirm.
  
  
• Consider shopping around for a better plan — you don’t always have to use the warranty offered by the retailer where you made the purchase. Many third-party companies offer service protection plans after you’ve made the purchase.

Additional resources and information about extended warranties

The Federal Trade Commission offers helpful information about how warranties work and what your rights are link opens in a new window, information about auto warranties and service contracts link opens in a new window and tips to help evaluate extended warranties and service contracts link opens in a new window. The Federal Communications Commission provides tips to protect yourself from auto warranty scams. In addition, the Better Business Bureau encourages shoppers to look up consumer reviews and business ratings on their website link opens in a new window before doing business with a company.

Extended warranties can help protect your finances from an unexpected repair bill, but coverage and restrictions can vary. Before you say yes, be sure to review your budget link opens to a Commerce page, and consider the benefits, drawbacks and cost, so you can make the best decision for your needs and for your finances.