2018-04-13 / On Second Thought

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Extended Warranties
Compiled by Warren Hughes

With the cost of electronics devices, are optional service contracts or extended warranties a good idea for these and other major purchases?

Think twice when purchasing an extended warranty or service contract; although, the salesperson may well pitch one to you. You might be better off skipping extended warranties and keeping that money in your wallet, advises the Federal Trade Commission. You could always put the money aside for any repairs you might need down the road.

Despite that advice, however, extended warranties represent a $40 billion dollar annual industry, and nearly a third of consumers have made such purchases, says consumer advocate Elizabeth Leamy in a recent column for the Washington Post.

There is an important difference in a manufacturer’s warranty and an extended service contact, the FTC points out. A warranty is included in the price of an item; a service contract costs extra. It’s an add-on that might not be worth the price. Some service contracts duplicate the warranty coverage the manufacturer provides. Others cover only part of the product, and some make it nearly impossible to get repairs when you need them.

The FTC suggests you consider these factors before purchasing a service contract: 1) Is the product likely to need repairs? 2) Does the service contract really provide extra coverage? 3) How are claims handled? 4) Who is responsible for the contract?

Before considering a service contract, make sure you know what your warranty coverage is. Compare the warranty coverage to the service contract to see if there’s any benefit to additional coverage. Read the costs and terms of the service contract. Depending on the terms, a service contract could last less than a year or more than five.

Accidental damage may not be covered. Also, there may be clauses that allow the company to deny coverage if, for example, you don’t follow their instructions for routine maintenance. A service contract might cover specific parts of the product or specific repairs. If the terms don’t list a part or a function as specifically covered, assume that it’s not.

Keep in mind that you may have other expenses, like a deductible or a fee each time the item is serviced.

You may be required to mail the product to a repair center, so consider shipping costs. Some service contracts set reimbursement amounts. For example, auto service contracts may not completely cover towing or rental car expenses. In addition, you may have to pay a transfer fee if you sell the product.

For more information, consult the FTC’s website at www.ftc.gov.

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