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 June 13, 2003
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What They Are and How They Work
Extended Warranties: Are They Worth it?
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By PlanetFeedback Staff

You�ve just spent hundreds, perhaps thousands of dollars on a big-screen television or home theater system.  You�ve done your homework:  you know you�re getting a good price.

You're convinced this is the model for you.  And the salesperson seems to agree, telling you about the superior performance and reliability of the product you�ve just selected.

But then comes the final sales pitch:  �You�ll want our five-year extended warranty, right?� 

You 're ambivalent. If the product is so good, do you really need an extended warranty? The salesperson assures you it�s better to be safe than sorry.  And who doesn�t want to be safe?  You�re so excited to get the thing home that you agree to spend upwards of 5 percent, 10 percent even 15 percent of the purchase price on an extended warranty.

Once home, you have second thoughts.  Should you have purchased the extended warranty?  Do you really need it?  PlanetFeedback offers the following questions and answers to help you figure out the extended-warranty decision.

What is an extended warranty?
Basically, it�s an insurance contract between you and the warranty company, usually a separate company not affiliated with the retailer.  The warranty company agrees to cover the cost of repairing an item that breaks or doesn't work because of a manufacturing defect during a specified period of time. 

Extended warranties don�t cover damage caused by fires, floods, and other disasters � including dropping the item when you take it out of the box (or your cat thinking those new stereo speakers are scratching posts).  Extended warranty companies can go out of business, rendering your warranty worthless. Before signing anything, it's worth it to ask some tough questions about a retailer�s track record with a particular warranty company.

How does an extended warranty work?
The typical extended warranty requires you to call and report the problem you�ve encountered.  If the problem's covered, \, the company will usually direct you to the closest repair center that has a contract with the warranty company.

But beware: if you live in a rural area, the repair center may not be convenient to your home, and it may be expensive to ship a heavy item.  The warranty company usually pays the facility directly for the cost of repair. But sometimes you might be asked to find a repair shop on your own, submit an estimate for approval, pay the bill yourself and send it in for reimbursement.  This can be time-consuming and frustrating, especially if you were expecting the warranty company to handle everything.

Does your credit card offer an extended warranty as a standard feature?
Check out your credit card�s terms and conditions, or call the company�s customer service line. Ask if an extended warranty is offered on purchases charged to the card.  Sometimes these plans are a good alternative to an extra-cost extended warranty. 

American Express card members, for example, can take advantage of the �Buyers Assurance Plan� that doubles the original U.S. manufacturer�s warranty on many purchases for up to one additional year.  Many Visa and MasterCard issuers offer similar programs to their gold and platinum cardholders.  (Always check the terms and conditions specific to your card before assuming that a purchase is covered by an extended warranty.)  If your credit card does not automatically extend the warranty, consider switching to one that does.  While these extended warranty programs don�t last as long as many extra-cost programs, they�re free and can offer worthwhile peace of mind.

How much will the equipment cost to replace if it breaks?
If you�re buying a $75 boombox or a $150 VCR -- or even a $300 digital camera -- an extended warranty often does not make sense.  These sorts of products just keep getting cheaper, and each new generation adds new features.  It�s often better in the long run to �self-insure� by skipping the extra-cost warranty and replacing the item at your own expense if it breaks.

Does the product have moving parts?  Have you had bad experiences with similar products?

If the answer to either of these questions is yes, you may want to consider an extended warranty for higher-priced purchases (generally above $700 or so).  If you�ve had good luck in the past with a particular brand, consider purchasing the same brand and skipping the extended warranty.

 If you�ve had problems with a particular product but absolutely can�t live without a new one from the same manufacturer, seriously consider purchasing an extended warranty.  (But always check the terms of the extended warranty for specific exclusions and requirements.)

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