Extended warranties can be of questionable use for the cost, but most consumers buy them and the vast majority of consumers who use them are satisfied with the service.
PC World magazine recently surveyed 2,031 consumers, 63 percent of whom said they purchased extended warranties for consumer electronics, including cell phones, televisions, notebook and desktop computers and computer printers.
Ninety percent of those who used the warranty said their repair or replacement request was honored and 80 percent said they were satisfied with the outcome, according to the magazine's "Are Extended Warranties Worth It?" report.
Extended warranties, purchased to cover consumer goods (including electronics, appliances and other devices used in the home or elsewhere) after the manufacturer's warranty expires, covers most or all of the cost to repair or replace an item for up to some set term, usually two to five years.
Independent consumer products and services rater Consumers Union has long pooh-poohed the extended warranties and in most cases recommends passing up the service as unnecessary for a variety of reasons:
- Some warranties unnecessarily start from the date of service, even when the manufacturer's warranty is in effect.
- Some gold, platinum and other special credit card issuers allow extra protection that as much as doubles the original manufacturer's warranty.
- Data from thousands of its Consumer Reports readers reveal the cost of an extended warranty is similar to the cost of a typical repair.
- Most electronic products are reliable with only a small percentage requiring repair within the first three years, again, according to the magazine's surveys. Defective electronics typically fail soon after their first use, when the manufacture's warranty is in effect.
Consumer Reports says a possible exception includes microdisplay rear-projection, flat-panel, and LCD models televisions. Preliminary Consumer Report findings show a fairly high rate of repair in the first year for microdisplay rear-projection TVs. LCD and flat-panel TVs revealed no spike in repairs the first year, but the magazine says it's too early to tell what will happen in later years.
The PC World survey also reported that among the 37 percent who did not purchase warranties, only 23 percent of them said they wished they had a warranty when their product failed after the manufacturer's warranty expired.
PC World says it also generally stands by advice that "extended warranties are rarely a good deal."
So why then are were warranty sales up 7 percent to $16 billion last year?
PC World says manufacturers are cutting standard warranty terms -- sometimes from three or five to one year -- and buyers who want to avoid unexpected repair or replacement costs are hedging their bets.
Salespeople are good at what they do -- selling consumers on the idea of added protection for that unexpected event, much like any type of insurance salesperson. Salespeople are encouraged to sell warranties, generally not for commissions, but for the store's and the manufacturer's bottom line.
The magazine reported that in 2004 Dell took in $1.36 billion in extended warranty sales but spent only $1.18 billion servicing both original and extended warranties. Also, PC World reported 24 percent of Dell's net income in the first quarter of 2003 came from extended warranty sales. By the fourth quarter of 2005 that had grown to 37 percent.
Satisfaction by those consumers who do use the contracts also helps boost sales by word of mouth.
PC World generally advises against extended warranties, but says buying an extended warranty could be an option depending upon the product, the manufacturer, the store and other factors.
To help make the decision, along with PC World's pointers, here is some advice to help you choose an extended warranty.
