Should you buy an extended warranty?

Is an extended warranty worth the cost?

When you’ve purchased an electronic device, major appliance, or vehicle, chances are you’ve been asked if you also wanted to buy an extended warranty or service contract. Extended warranties are offered by retailers for an additional cost to customers and provide repair or product maintenance for a specific period of time.

Selling extended warranties is often quite profitable for retailers. It’s an easy way for them to make money because they get to keep a percentage of what they charge for the service contracts.

Before you purchase an extended warranty, answer these questions.

  • Does the product already come with a manufacturer’s warranty? Many things already come with a warranty that covers replacement or repairs within a certain time period. Even if the warranty period is short, manufacturers may offer low-cost repair or replacement of items if they are known to be defective, although there are no guarantees unless state or federal laws apply.
  • Will a manufacturer’s warranty overlap with the extended warranty? You may want to forgo purchasing an extended warranty if it will result in duplicate coverage.
  • If you’re using a credit card for the purchase, does your card issuer automatically extend the manufacturer’s warranty? Some cards double the warranty period or extend it up to a year for products purchased using the card.
  • Do you plan on purchasing your product from a well-known manufacturer? Look for product reviews to gauge reliability and the potential for problems to occur before you spring for an extended warranty.
  • If repairs are indeed necessary, will they be costly? You should weigh the cost of the extended warranty against what it will cost to pay for the repairs out of pocket.

If you decide to buy an extended warranty, read the terms very carefully. Extended warranties contain coverage exclusions and limitations. Also, some extended warranties may require you to pay additional charges to have a covered product serviced (e.g., deductibles, fees, and shipping costs). Know what you are getting.

Blue Spark Capital Advisors

We're a fee-only Registered Investment Advisory and financial planning firm based in New York City and the Berkshires.

We specialize in working with women after divorce, death of a spouse, or other life transitions such as retirement or job change. We provide financial planning and investment management services.

We believe in a holistic approach. Movement in each piece of your financial plan impacts the others, so we consider your entire picture.

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