Resist the pitch

Just say ‘no' to extended warranties ... most of the time

For years, Consumer Reports has advised shoppers to avoid purchasing an extended warranty for most products. We feel so strongly about the issue that we recently took out a full-page ad in USA Today. No matter how much we write about the subject, the media just can't get enough. This week, I appeared on Good Morning America, The Today Show, and NBC News Insider Reports to discuss our latest and most comprehensive analysis of why these costly service plans rarely make sense, while Kim Kleman, deputy editorial director, spread the word on Fox & Friends. Dozens of other outlets were also interested in what we have to say, including the Associated Press, CNN, Chicago Sun Times, New York Times, and Los Angeles Times.

We're glad for the sweeping the coverage because it helps broadcast our message to a wider audience. And the timing couldn't be better, since consumers are expected to spend an estimated $1.6 billion on extended warranties household products over the holidays. No, that's not a typo.
Why are warranties a bad deal? To understand completely, you need to look at the whole picture, starting with the fact that retailers push them so mightily -- a clear signal of how highly profitable they are. Experts we've spoken with say that merchants can pocket half of a warranty's purchase price; that's more money than they often make selling actual products. You don't have to be a skeptic to realize that insurance companies are not in business to pay out on claims. That's why your premiums go up and policies sometimes get cancelled after just one car accident or calamitous storm.
It's also important to grasp what the concept of insurance is all about. Be it health, home, or auto, the primary goal of insurance is to protect you from catastrophic financial losses you cannot easily cover out of pocket. Repair costs rarely rise to such epic proportions.
When you take out an extended warranty, you're essentially making a sucker's bet. You're gambling on a series of events happening at precisely the right time under precisely the right circumstances. These include:

• That a product will break exactly after the manufacturer's warranty has expired and precisely when the extended warranty is in effect. Sure, it's possible, but unlikely.
• That the cost of the repair will exceed the cost of the warranty.  Surveys of Consumer Reports subscribers reveal that the costs are fairly close most of the time.
• That the product is likely to break in the first place. According to our data, most products are quite reliable and have not broken during the first three or four years of ownership.
• That you're going to want to have the product fixed. Perhaps surprisingly, many readers surveyed said they didn't bother seeking repairs because they desired a replacement product that had either new features, more power, greater flexibility, more advanced technology, or improved energy efficiency. 

A couple of exceptions to the rules

There are just two instances in which you might want to consider an extended warranty. One is for a rear-projection television set. Our data show that about 10 percent of rear-projection TVs bought new in 2005 or 2006 needed repair, three times the rate of picture-tube and flat-panel sets. A common problem: bulb failure. The median cost to repair these sets out of warranty was about $400. The cost of a replacement bulb is about $200 to $400, and the typical extended warranty covers one bulb.
The second exception: Apple computers. And it's not because Apples are trouble-prone. We recommend the extended warranty because the company offers only 90 days of telephone tech support. Most other manufacturers give you a year. After 90 days, you'll pay $49 per incident to call the Apple to help resolve any problem. If you still want an extended warrantyIf you're the kind of person who worries incessantly about your products' well-being, we suggest you put aside the funds you'd otherwise spend on an extended warranty in a contingency, or rainy-day, repair fund. If the unlikely happens and the product breaks, you'll have money available to pay the repair bill. If not, you can always put it toward the purchase of something else. If you're still not convinced and insist on buying that warranty, here are a few tips:

• You can often extend the manufacturer's original warranty for up to a year by purchasing products with your credit card. Most gold and platinum cards provide such coverage, but double-check with the issuing bank for specifics.
• An extended warranty should cost no more than 20 percent of the product's purchase price. And regardless of the price, try haggling. We've found some retailers are willing to negotiate on the price of a warranty.
• Make sure the terms are generous. For example, does the warranty company send a technician to your home to make repairs or arrange for pickup of heavy items? If your product will be in the shop for an extended period, can you get a free loaner? Also, find out if the warranty has a "lemon-law" stipulation that guarantees a free replacement product if the repairer can't fix the product correctly after three or four tries.

Comments

[J. Hoffman]

This warranty is too expensive. 3600 dollars for 4 years coverage. The sales people are nice at first but they want you to give them 550 dollars deposit while you review the coverage. Then when you hesitate they put a supervisor on the phone and the supervisor quotes scheduled maintenance "facts" *yeah right* that insinuate that all these major things will break down and tell you the customer what the scheduled maintenance is on a car you own. Don't these people realize that I've read the maintenance schedule and review it periodically? The supvervisor tried telling me that Honda is a more reliable car than Mercedes. My comment is ...Yeah Hondas last longer if you want a car that has a bunch of plastic breaking off in it, yeah it runs but it looks like a run-down heap). ((Some of us have heavier and sturdier cars because of the defective Japanese seatbelts on these so-called reliable cars.)) There's a reason why japanese cars are cheaper, it's because they skimp on safety and use less steel.
The reason to have more expensive car is that they tend to be safer; sorry but safety is very important, not just paying the lowest cost for a car.

When you say that you want to think it over and that no money is going to change hands till you have had time to think it all over...Then the supervisor calls you "SOFT" and "FLAKY". What kind of sales pitch is that where they insult the customer. At that point I ended the call.

DON'T RESPOND TO THEIR EMAILS or INTERNET ADVERTISING. They get a thumbs down for initial customer service. Imagine how horrible they'd be if you actually had to call in a claim!!

Call your local car dealer and ask them if the Continental company actually pays for the services?! I bet you'll hear that they don't.
Cars these days last way past 100,000 miles so long as you respect the car enough to change the oil and oil filter, and air filters.

[Glenn Merrill]

I BOUGHT A EXTENDED WARRENTY FROM VOLVO OF NORTH AMERICA, I HAVE NEVER BEEN SO DISAPPOINTED WITH A WARRENTY IN MY 62 YEARS.
IN MINE AND MANY OTHER CASES VOLVO OF NORTH AMERICA ONLY REACT, NOT WHEN THREATENED WITH A LAW SUIT, BUT ONLY AFTER YOU SPEND THE TIME AND MONEY TO HIRE A LAWYER.
BEST REGARDS TO ALL CONSUMERS

[Jason]

I have purchased an extended warranty from Continental Warranty for my vehicle. I strongly urge any one considering using this company to pass. I have had nothing but problems and they only pay when threatened with legal action. Please pass this along to everyone you can think of.

[Hayden]

Ive noticed alot of "third" party companies offereing Extended Warranty's for example http://www.warrantywebonline.com for cars, electronic xboxes, and other components that no longer made with the high quality they at one time were . Im not sure if you agree or disagree with quality of products manufactured versus the need for extended waranties ?