Extended warranty Buying Guide

Getting started

You might be tempted to buy an extended warranty on your next laptop or dishwasher or a service contract for your new car. But chances are what you spend will be money down the drain.

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

Extended warranties are notoriously bad deals because:

Some repairs are covered by the standard manufacturer warranty that comes with the product.
Products seldom break within the extended-warranty window--after the standard warranty has expired but within the typical two to three years of purchase--our data show.
When electronics and appliances do break, the repairs, on average, cost not much more on average than an extended warranty.

We've long found extended warranties to be a bad deal for you and advise against buying them. Note that you might want to consider an extended warranty for a repair-prone brand, provided that the warranty is inexpensive and comprehensive and the cost of repairs tends to be high.

Stingy manufacturer warranties

In recent years, manufacturer warranties have become skimpier, especially for labor, on expensive goods such as laptop computers. Terms that used to be one year have dwindled to 90 days in some cases, making repairs potentially expensive even if the parts are free.

It's important that you investigate the 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. Brand-reliability information for major products we test is available to ConsumerReports.org subscribers.

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

Warranties did not necessarily provide better service. Among survey respondents whose repairs were covered by warranties, 60 percent were highly satisfied and 22 percent were dissatisfied with their repair. Those numbers are remarkably similar to the percentages found for those who paid for repairs out of pocket. Notably, repairs covered by warranties had slightly more problems than repairs covered out of pocket. And they were:

More likely to have taken at least two weeks (28 percent compared with 16 percent for out-of-pocket repairs).
More likely to have resulted in a repair not done correctly the first time (22 percent compared with 13 percent for out-of-pocket repairs).

Those findings were consistent across the wide range of products assessed in our analysis.

Electronics warranties

Just about anyone who has purchased a personal computer has also heard a pitch for adding an extended warranty. These plans typically cover repairs beyond the standard factory warranty; some also include tech support or coverage for theft or accidental damage.

Buying a computer warranty might be worth considering for the following reasons:

For a laptop that you're planning to use a lot on the go. But make sure it includes theft or accidental damage.
To extend your tech support coverage if you're buying a Mac. While Apple has strong tech support, without a service contract its coverage is pretty skimpy.

What about other electronics? Sixty-seven percent of in-store shoppers in our latest survey said that sales staff had pitched them on the idea of buying an extended warranty. Perhaps that explains why in-store electronics shoppers were more likely than online shoppers to buy an extended warranty (14 percent vs. 6 percent). Overall, the median price paid for an extended warranty or service contract was $73 in-store and $64 online.

Those possible exceptions aside, though, we think extended warranties for computers and other electronics items are bad investments. In past surveys, we've found that the vast majority of repairs are made while items are still covered by a factory warranty and that extended warranties typically protect, at relatively high cost, against a very low risk of a catastrophically expensive repair. And bear in mind that buying items with some credit cards extends warranties at no additional cost.

Appliance warranties

Eighty-six percent of shoppers for major appliances in our latest appliance-store survey said their checkout didn't conclude without at least a suggestion that they purchase an extended warranty. At some stores, shoppers felt "strongly urged" to spring for the extra coverage. The median price paid for an extended warranty or service contract was $114 for a major appliance and $39 for a small appliance.

We don't recommend purchasing a warranty or service contract, because most repairs do not occur during the limited time period covered by the extended warranty. But some consumers told us that because of the growing complexity of major appliances and their habit of breaking, they opted for an extended warranty. If you do buy one, be sure you understand its terms, particularly how it differs from the standard warranty and which years it covers. (Some extended warranties overlap with the standard ones.)

If you feel you need an extended warranty

If you want peace of mind and don't mind paying for an extended warranty, 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.

See what other retailers offer. Some retailers might extend a warranty without charge. Costco, for example, extends the manufacturer's warranty on televisions and computers to two years from the date of purchase, at no cost to you.

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 reconnects it to your audio-video setup? And if the product will be repaired, is there a lemon clause such that after a few repairs the product is replaced?

Keep in mind that an extended warranty usually begins the day you purchase a product, so it overlaps with the standard warranty for a year (assuming that's the term of the standard coverage). So a three-year policy gives you only two years of additional coverage.

Don't pay more than 20 percent of the purchase price of the product for an extended warranty. Always try to negotiate a better price.

Automotive-service contracts

Car owners continue to feel tricked by vehicle-service contracts that provide little or no benefit, the St. Louis Better Business Bureau reported in 2011. The BBB said that it received nearly 800 complaints about 24 automotive service contract companies in the St. Louis area. The complaints allege misleading advertising and a failure to pay for repairs.

"Typical is a complaint received last month from a Fort Lauderdale, Fla., consumer: ‘I pay on time and follow all terms of the policy but they won't cover anything,' " the BBB said in a statement.

We discovered similar problems last year, when we reported on auto-service-plan marketers, such as StopRepairBills.com and the now-defunct U.S. Fidelis, which sell plans from third-party companies. Many of the marketers are in Missouri.

We found that the plans, which can cost hundreds or even thousands of dollars, typically contain fine print that the providers use to deny claims. They might reject a claim, for example, because the customer can't prove the vehicle was maintained according to the manufacturer's recommendations or because the problem was caused by gradual wear and tear or was a pre-existing condition. And plan benefits might be limited to a vehicle's market value at the time of a breakdown or a specified maximum amount. Because the marketers don't actually provide the coverage, they often disclaim responsibility for the plans they sell.

Part of the problem, the marketers told us last year, is that customers don't read the agreements before they buy. The companies said they were pressing plan providers to cover legitimate claims and have stopped marketing the plans of those that don't.

But the complaints continue, the St. Louis BBB said. It pointed to three active Missouri companies that have received the BBB's lowest, "F" rating: National Dealers Warranty, doing business as Stop Repair Bills; Service Protection Direct or Protection Direct, and Car Safe or Dealer Preferred Warranties. The BBB says all three companies have been the target of lawsuits by the Missouri attorney general.

The St. Louis BBB issued a report critical of the industry, titled "Vehicle Service Contract Industry. How Consumers Lost Millions of Dollars."

Bottom line

We say skip extended-service contracts if you are buying a car with a good track record. You might consider one if you're planning to buy a model that we has been repair-prone in the past. If you're considering an automotive-service contract, note that even if the provider covers your claim, you might find that the mechanic won't accept the coverage because of the amount of time it can take to get authorization to begin work. Instead of buying a contract, take the money it would cost and put it in a separate bank account to cover future repairs or for the eventual down payment on a replacement vehicle. And maintain your vehicle according to the owner's manual recommendations.