Why You Don't Need An Extended Warranty

[Taggart]

November 2006

Consumer Reports

This holiday season, shoppers are expected to spend a whopping $1.6 billion on extended warranties for laptops, flat-screen TVs, other electronics, and appliances.

And almost all of it will be money down the drain.

Retailers are pushing hard to get you to buy extended warranties, or service plans, because they're cash cows. Stores keep 50 percent or more of what they charge for warranties. That's more than they can make selling actual products.

"You sell a $400 television set and maybe make $10," Eric Arnum, editor of Warranty Week, a trade newsletter, says of retailers. "But you sell a $100 warranty and make $50."

For the consumer, extended warranties are notoriously bad deals because:

* Products seldom break within the extended-warranty window (typically around three years), our data show.

* When electronics and appliances do break, the repair often costs about the same as the cost of the warranty.

We have long advised against extended warranties. In fact, we feel so strongly that consumers are being misled about them that we took out a full-page ad in USA Today on Nov. 14 (see below) to warn shoppers.

Two possible exceptions

There are two caveats to our just-say-no advice: It's worth considering an extended warranty if you're buying a rear-projection microdisplay TV. Repair costs can be high, and these sets have been three times more likely to need repairs than other types of TVs. We also think it may be wise to get an extended warranty (which includes extended tech support) if you're buying an Apple computer, because they come with only 90 days of phone tech support.

What breaks down and when

For decades, the Consumer Reports National Research Center has tracked the ownership experiences of millions of consumers and thousands of products. Annual surveys ask Consumer Reports subscribers if they own certain products and whether they've needed repairs. From

this data, we learn which brands have been more repair-prone than others, and we have reliability information about the following products that are often bought around the holidays:

Flat-panel TVs. They are a magnet for extended warranty sales, says Arnum, of Warranty Week. "Whenever you have product that has cutting-edge newness to it, there's a perception of fragility," he says. "There's something spooky to it, and consumers say, 'I've got to insure this.' That's the solution to the uncertainty."

Flat-panel TVs are so new that their long-term repair record isn't known. But our latest reliability survey shows that those bought in the past two years have been quite reliable--just as reliable as conventional, direct-view TVs. Even if your LCD or plasma set does need to be repaired, it will probably cost you less than you're likely to pay for an extended warranty. Of the small percentage of survey respondents whose LCD TV needed a repair, only 8 percent reported it costing more than $500, the cost at which an extended warranty might make sense. For plasma owners whose set needed a repair, only 14 percent paid more than $500.

Computers. Most desktop PCs come with a year of tech support. An extended warranty typically costs about the same as the average PC repair. Instead of buying a warranty that you're unlikely to use, you'd be better off paying to fix your computer if it breaks. As noted above, because Apple computers offer only 90 days of tech support (a $49 call otherwise), you might consider an extended warranty if you buy one.

Laptops. Laptops have among the higher repair rates of the products we track. Forty-three percent of three- to four-year-old laptops have needed to be fixed, our subscribers indicate; typical repairs cost between $100 and $400. But many of these problems occurred outside the coverage period of a typical computer extended warranty. Also be aware that extended warranties usually don't cover problems if you drop the laptop or spill something on it. If you're worried about that, you should get accident-damage protection. Typically, though, you must buy an extended warranty first.

Digital cameras. Our survey of subscribers has shown that fewer than 10 percent of those who bought a digital camera in the past three years have had to get it repaired or had a serious problem. So the odds that you're going to need an extended warranty are pretty low.

Stingy manufacturer warranties

The hard sell for extended warranties is coming at the same time that manufacturers' warranties are getting skimpier. Companies are reducing coverage for everything from appliances to TVs.

At the same time, makers of pricey goods like laptops are scrimping on coverage for labor. Terms have shrunk from 1 year to 90 days in some instances, making repairs potentially expensive even though the parts are free.

Extended warranties are also increasingly aimed at making consumers' lives easier, Arnum says. For example, some plans offer in-home service or instant replacements for products as inexpensive as printers, freeing people from having to ship their broken products to service centers.

It's important that you investigate the manufacturer's warranty coverage before you buy any product, and patronize those manufacturers that offer decent warranties. More important, buy from manufacturers whose products are reliable in the first place. Consumer Reports magazine and its Web site contain brand reliability information for major products we test.

Overall, products have been reliable enough that we don't think you need an extended warranty.

If you feel you must buy an extended warranty

For consumers who want peace of mind and don't mind paying for an extended warranty they'll probably never need, or for those whose chosen brand is repair prone, we offer this advice:

First check your credit card. Before you say yes to an extended warranty on any product, see whether your credit card provides similar coverage. Such plans, most often found on gold and platinum cards, typically lengthen the original manufacturer's warranty by as much as one year.

Shop around. Extended warranties vary in length and terms. Don't pay more than 20 percent of the purchase price for one. Always try to negotiate a better price.

Beware of hidden "gotchas." For heavy items such as large TVs or major appliances, ask whether the extended warranty includes in-home repair or pickup. For TVs, who reinstalls it? And if the product will be repaired, is there a lemon clause such that after a few repairs the product is replaced?

[astral]

A useful report.

Thanks

[TizMe]

I don't think an extended warranty is worth the paper that its written on in Oz. In Asia it must be worth (0 - paper).

[astral]

As a general rule, modern electronics will either fail in the first few weeks

of the "burn in period"

otherwise it will work without problem for many years after any extended warranty.

[guardian]

Thanks Taggart for this useful post

[Pink Mist]

makes sense really now, a lot of franchises here will cut their prices to the bone very easily with little or no bartering but go tooth and nail for the extended warranty.

[tutsiwarrior]

my Toshiba laptop came with a standard 3 year warranty and I was glad to have it...one screen, two keyboards and a motherboard all had to be replaced during the warranty period...all free and no questions asked in Abu Dhabi...

my present high falutin' super spec HP Pavillion has a one year warranty and I already got big probs but I figure are virus/software related and probably not covered. If your equipment is yer money maker and you lose big time without it then I say go for the extended warranty. I work in the power generation industry where non availability of a generating unit means big bucks on an hourly basis...warranty contracts are usually very detailed with damages to be paid by the contractor for revenue lost as a result of an equipment failure.

now, I can understand if one's flat screen tv goes down and the brats are screaming that teletubbies is not available...lock their little asses in the closet until they settle down. When your equipment that you use to earn a living goes down, a different matter entirely...

[Pink Mist]

couldnt agree more Tutsi, but your work stuff is a bit different

[quiksilva]

As a general rule, modern electronics will either fail in the first few weeks

of the "burn in period"

otherwise it will work without problem for many years after any extended warranty.

Unless its an LCD monitor from HP then it will die two weeks after the warranty runs out, or at least thats what happened to me

[John_Betong]

Digital cameras. Our survey of subscribers has shown that fewer than 10 percent of those who bought a digital camera in the past three years have had to get it repaired or had a serious problem. So the odds that you're going to need an extended warranty are pretty low.

I must be one of the unlucky ones as far as digital cameras is concerned. Here is my experience since September 2003:

First digital camera bought for about 8,000 baht, repaired in warranty then failed again, outside warranty and quoted 12,000 baht to repair!

Second used digital camera cost 4,000 baht. Lasted two months and quoted 6,000 baht to repair.

Third digital camera cost about 10,000 baht , replaced with new camera within 3-months of warranty period. Lasted about another 18 months before being stolen.

Current digital camera cost about 8,000 baht and no problems but only 9 months left on warranty.

Biggest part of the problem with the cameras was the mechanical zoom feature. Roll on the time when the electronic zoom is affordable.

Cheers,

John_Betong