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Extended Warranties: A Good Deal?
From iPods to hot-rods, treadmills to plasma screen televisions - it seems everywhere you shop these days, more and more retailers are encouraging you to buy extended warranties.
"I love every one of our service plans," said Best Buy customer experience manager Gina Gabrielson.
"We mention them to customers," said 2nd Wind store manager Chris Ball, "and they think it's a great idea."
"I think they're good for everyone," said Jim Lupient Infiniti finance manager Chad Ottoson.
But are they really?
"It's very rarely a good idea to purchase an extended warranty," said Robert Krughoff, the president and founder of Consumers' Checkbook magazine. "And, in fact, in most cases I think of it as irrational."
Pause and think about it awhile. Just seconds after convincing you to buy a top-of-the-line washing machine, digital camera or laptop computer, a sales clerk urges you to spend an extra couple of hundred bucks on something called a "performance guarantee" or "product replacement plan."
"That's how they sell [extended warranties]," said Minnesota Assistant Attorney General, Jessica Palmer-Denig. "They suggest your [new purchase] is likely to break and then you'll need an extended warranty that will go on past the manufacturer's warranty."
"If it's such a great product," wondered Krughoff, "then why am I buying protection for something that might go wrong? It just doesn't make any sense."
Krughoff said warranties are really just another form of insurance and it only makes sense to buy insurance against catastrophes.
"It makes sense to buy insurance in case you have a heart attack or your house burns down or you're in a terrible car accident," Krughoff said, "but extended warranties are not generally covering real catastrophes.
You're better off, if something happens to your product, taking it to a good repair shop and getting it fixed. In the long run, you'll save money doing that and you'll have a lot less hassle."
Those who actually profit the most from the sale of extended warranties are the retailers who sell them.
"It's a $15 billion a year industry," says Assistant Attorney General Palmer-Denig, "and more than $7 billion of that gets paid to the retailers who sell you the warranty.
Profits aside, not all extended warranties are the same.
Target entered the extended warranty market just recently, offering three-year "extended service plans" on most products sold in its electronics department.
The plans come in four different prices ($19 - $79), depending on the price of the electronic device, and eliminate the need for customers to save sales receipts. Instead, they merely apply a sticker to their electronic device and call the phone number printed on the sticker when they need to arrange for service.
"Target has simplified the extended service plan," said Rob Saba, store team leader at the new Super Target near Knollwood Mall in St. Louis Park. "Anything goes wrong with your product and all you have to do is call that number and they'll take care of your product from there. If it's a smaller product, we'll send you out a pre-paid shipping box, you send it back to us and we'll repair it. If it's a bigger product, what we'll do is actually send someone to your house to repair it within 24 to 48 hours."
Consumer Reports magazine recommends buying extended warranties on exercise equipment with lots of moving parts, like treadmills and elliptical machines.
"They're electronic devices," pointed out Chris Ball of 2nd Wind. "They have motors and rollers and belts that have a tendency to wear out if [the customer] uses the machine a lot."
2nd Wind offers five-year performance plans ranging from $195 to $250 on most of its fitness equipment. The warranties are transferable anywhere in America.
"So, even if you move to Alaska," said Ball, "and there's no town anywhere within 200 miles, we will get a service technician to your home."
Experts say consumers rarely get their money's worth buying extended warranties on cameras these days because most well-known brands are so dependable that the warranties are an unnecessary added expense.
"It's a bad deal," said Krughoff of Consumers' Checkbook. "Don't buy an extended warranty on a camcorder or a digital camera."
Managers at National Camera Exchange disagree with Krughoff.
The cost of a one-year "performance guarantee" on a $600 digital camera at National Camera Exchange is about $50.
"The cost of a typical repair on a digital camera is a couple hundred dollars," said Gil Robles, a manager at the National Camera Exchange store in Golden Valley. "Every camera I personally own has a performance guarantee on it, because I know the cost to fix a broken camera is prohibitive. If your camera needs repair and you have a performance guarantee, then we'll send it back to the manufacturer. If they determine that [the problem] wasn't because of abusive mishandling, then they'll fix the product for free. Parts and labor are covered. There are no deductibles. If your camera cost under $200 and it breaks, we'll replace the camera, or we can credit the customer the value of that product and they can purchase something else if they want to."
Whether it's cameras, refrigerators, or big-screen TVs, sales assistants at Best Buy are instructed to inform all customers about the store's extended warranty options, which Best Buy refers to as "performance service plans" and "product replacement plans."
"It's my job to inform everybody of what the options are," said Best Buy customer experience manager Gina Gabrielson. "I can't say that [every] TV is not going to break within four years. I'd love to tell you that, but that's why we offer [extended warranties]. So we can [provide] peace of mind for our customers. It's all about choice."
While checking out at the register, Best Buy customers are reminded about the store's warranty options.
"Our cashiers are instructed to make sure that you are aware of the benefit," said Gabrielson.
"If you feel pressured at the checkout line to buy a warranty," said Assistant Attorney General Palmer-Denig, "then it's not necessarily in your best interest to do it. Take your time, wait, take the product home, read the contract, and then make a fully informed decision about whether the warranty is going to offer you some value."
Car salespeople will tell you extended warranties are a bargain for consumers.
"It only takes one repair for the customer to come out ahead," said Chad Ottoson, finance manager for Jim Lupient Infiniti in St. Louis Park. "I have [an extended warranty] on my own car. I've got one on my mom's car, I've got one on my uncle's car. It's not something I would do to myself and my own family if I didn't believe in the product."
You don't have to purchase an extended warranty from the same place you purchase a vehicle, however.
"Some dealerships might charge you $800 for the same extended warranty that another dealership would charge you $300 to $400 for," said Krughoff.
Consumers' Checkbook has created a list of dealers offering the lowest prices on service contracts for all types of cars. "We actually have shopped all around the country," said Krughoff, "to identify dealerships that will sell those warranties at the best possible prices."
Click here to visit the page with their findings.
Finally, if you're determined to buy an extended warranty, Krughoff said Target's prices "compare favorably" to most.
It's a gamble either way, but wagering that new, special something you just bought won't break might be your safest bet.
