Should You Buy Extended Warranty Coverage?

Buying a computer or some other big ticket item? Find out if you need to buy extended warranty coverage for it.

As I was standing at the counter at Best Buy last summer getting ready to buy a shiny, new laptop, the salesperson asked if I wanted the extended warranty. I asked what the warranty covered. The salesperson explained that it added some time onto the manufacturer’s basic warranty, and included a service plan for technical support. Figuring that I had handy people at home to give me all the technical support that I needed, and generally being careful about not breaking things, I decided to pass.

Well, it seems to have been a wise decision. In hindsight, that extended warranty period would’ve added another couple hundred dollars to the purchase price of my laptop, and would be close to expiring at this point. So far, I’ve had no trouble!

Do you have an extended warranty?

Planning To Buy Extended Warranty Coverage? Some Considerations

It seems that nearly everything comes with an optional extended warranty these days. Simply put, it’s insurance for the stuff you buy. I’ve heard some people say that they never take them, others say that they always take them, and others still say that it depends on what you’re buying. We’ve even published a few posts here that have warned you about how to protect your assets from financial loss and have also discussed which financial products to be careful about. In both these articles, we talk about some pros and cons of the extended warranty.

Given all this, should you still buy such coverage? I’m not sure that there’s a right answer to that question, but here are a few things that could help you make a decision:

1. Can you afford to repair or replace the item on your own dime if it stops working? I bought an extended warranty on a used car that I bought in college. There was really no rhyme or reason for buying the warranty, other than the salesperson recommended it (of course). A couple of years later, a week before the expiration of the warranty, the engine in the car seized up and had to be completely rebuilt. I’d spent a few hundred dollars on the warranty, but it saved me several hundred more in this situation and was certainly worth the purchase price.
2. If you’re buying the item on credit, does your credit card offer protection? Some credit cards extend or even double the manufacturer’s warranty. Check with your credit card issuer to find out what kind of coverage you can expect on your purchases. One way to increase credit card savings is to look into getting a card that offers protection, especially if you have some expensive purchases such big ticket items or electronics and gadgets in your near future.
3. What does the warranty cover? Some extended warranties cover only some parts, while others cover the entire item. You also need to know whether the warranty covers only failure, or if accidental damage is also included. Some of us were born a little klutzier than others and have been guilty of accidentally winging cell phones across dance floors and dropping digital cameras in lakes. Not me, of course, but some of us.
4. How well proven is the technology? Generally speaking, the newer the technology, the more likely it is that there are some bugs that haven’t yet been worked out in the design. Depending on the purchase price and the coverage offered, an extended warranty may be worthwhile for cutting edge products.
5. Do you know enough about the product? You may instead want to do a little homework before you take the plunge on that new plasma TV/waffle iron combination unit. I love Amazon and CNet especially for customer reviews. Reading reviews on Amazon has helped guide me toward several recent purchases, including a GPS for my spouse for Christmas and a Keurig coffee brewer for myself. Based solely upon the reviews that I found, I felt confident enough in both of those purchases to skip the extended warranty.
6. How much is the warranty plan? one last thing to consider is the purchase price of the plan. An 8 GB iPod Touch at Best Buy and other retailers goes for the price of $229.99. The warranties on the iPod, however can differ across stores. At Best Buy, a plan is available for an additional $39.99. When Circuit City was still around, it offered two different warranty plans, priced at $49.99 and $69.99. With extended warranties, as with anything, it pays to shop around to find the level of coverage you need at a price you’re willing to pay.