Why They Sell Extended Warranties

Home Home and Auto Appliances Purchasing Why They Sell Extended Warranties

Generally speaking, extended warranties benefit the company issuing the warranty more than the person buying the warranty. If that weren't true, the companies wouldn't sell the warranties at all. Knowing that extended warranties are a profitable venture for the seller is important when deciding whether to buy one yourself.

Extended warranties also don't cover the most trouble-prone years of an appliance's life. When an appliance has a failure, it tends to be either very shortly after it's put into use, or several years after it's been used. The time between six months old and five years old is usually the most trouble free time.

Manufacturers give a one-year warranty on most appliances. They want to cover the immediate failures because those failures reflect poorly on their company. Extended warranty companies know that if an appliance makes it past the first year, there will be very few and most likely no claims for the rest of the term of the warranty. And, most warranties don't cover appliances beyond five years.

But, aren't extended warranties just like the insurance you buy for a car or a home? No. Extended warranties are often sold as if they were a form of insurance. However, they're quite different for these reasons:

1. Extended warranties usually require a long term, such as one, two or three years.
   
   
2. They only cover the appliance itself, whereas car and home insurance often covers external liabilities.
   
   
3. Extended warranties are usually not offered for the entire life of an appliance.
   
   
4. There is limited competition. You can price-shop warranty plans, but most people aren't aware of this.
   
   
5. Warranties usually must be purchased when an appliance is new.
   
   
6. They have a poor cost-to-benefit ratio.
   
   

Because a typical appliance repair is around $120, you must determine whether the cost of the warranty minus any required deductible is a good investment. If the cost of the warranty is more than 75 percent of the repair cost, buying the warranty is probably not a good use of your hard-earned money.

Finally, one thing extended warranties on appliances do provide is peace of mind. If you have had a miserable experience with an appliance, and many people have, or if you don't like the thought of getting hit with a large repair bill at an inopportune time, an extended warranty may be right for you. Just make sure you do your homework before you buy one.

Find out from the appliance retailer whether you can get the warranty the next week or month, usually you can. If you can get out of the store without it, you may later determine that the cost isn't worth it. If you feel pressured to buy it on the spot, you may not give it the consideration it requires.

RepairClinic.com offers easy-to-understand advice via the Internet about how to make all kinds of home appliance repairs. The web site empowers do-it-yourself homeowners by helping them diagnose problems, find and order parts, and make repairs. This cost-effective and convenient service can be found at repairclinic.com.

Do you have a time or money saving idea that wasn't included in this article? Please send it to tips @stretcher.com. We get the best ideas from our readers!

If you liked this article sign up for our free eNewsletter Surviving Tough Times Do it today and we'll give you our ebook featuring over 200 ways to save on groceries (a $19.95 value).

Follow The Dollar Stretcher on Twitter.

I Would like to:

• See more articles on this subject
• See what else is in this issue
  
• Subscribe to "The Dollar Stretcher" free weekly email newsletter
  
• visit the Problem Solving Center
  
• visit the Reference Library
  
• browse the 'author' index
  
• search 'by date' index
  
• check out Past Issues of Newsletter
  
• go see 'What's New'
  
• "Can You Help This Reader?"
  
• drop by 'Tips, Quips & Quotes'
  
• send email to the Editor of "The Dollar Stretcher"