Extended Warranties: 4 Essential Questions to Ask Before You Commit

By Len Penzo on June 16, 2009

My old barbecue had been with me for so many years that it was clearly ready for the scrap heap. But as many guys will tell you, after countless cookouts and parties we tend to get attached to our barbecues the same way we get attached to our dogs. A good grill, like a good dog, is something to be revered and as such it is always tough for owners to recognize exactly when the time finally comes to say goodbye.

And so it was one day several weeks ago. The Honeybee and I were cleaning up the backyard in preparation for summer when she gently pulled me aside.

“Don’t you think it’s time?” she asked, looking over at my greased-over, rust-eaten but ever-faithful grill sitting nearby.

“”Time for what?” I replied, feigning complete ignorance.

“The barbecue, Len. I know you love it. The whole family loves it. But it’s best days are long gone and –”

Before she could say anything else I had to interrupt. “No, you’re wrong, Honeybee. That grill has one or two summers left in it. Maybe even three.”

She just looked at me, waiting for me to finally come to my senses, which I finally did. But taking that barbecue out to the curb still ended up being no less traumatizing to me than the cruel conclusions of Eight Below, Old Yeller and Where the Red Fern Grows.

Excuse me while I get a tissue and compose myself…

That’s touching, Len. But what in the world does this have to do with extended warranties?

I’m getting there.

So I went to my favorite store to buy a new barbecue grill and when I got to the checkout stand the lady at the counter dutifully rang up the price.

“Sir, that will $432.89. For an additional $65 would you like to buy a two-year extended warranty?”

Uh-oh. Luckily, it was easy for me to decide because I simply referred to my trusty handy-dandy four-question extended warranty checklist.

For the record, I passed on the warranty extension.

Do you always end up in a brief state of panic every time the person at the register asks whether you would like the extended warranty?

You shouldn’t.

Actually, there is no need to make a decision to buy extended warranty coverage at the checkout counter and under pressure. The fact is many retailers allow consumers 30 days after a purchase to decide on whether to buy additional warranty protection.

Why Are Extended Warranties Being Offered for Everything?

It used to be that extended warranties were basically limited to big ticket items like automobiles and refrigerators or other appliances. Not any more. Now they are offered on everything from cell phones and clock radios to barbecues.

What’s the reason for change? Well, the biggest reason is that extended warranties are profit makers. In fact, Consumer Reports says that profit margins on extended warranties can be as high as 50%. This makes total sense if you think about it; if the odds were against a product making it past the original warranty or extended plan then these deals just wouldn’t be offered in the first place.

Four Basic Questions to Help You Decide Whether to Buy an Extended Warranty

The conventional wisdom out there is that, in most cases, extended warranties are not a wise decision because they are expensive and are rarely used. But that’s not always the case.

For me it boils down to four basic questions that I always ask myself to help me make an informed decision:

1. How expensive is the product?

If your clock radio craps out, you’ll most likely just throw it away and get a new one. Not so with a car. Generally speaking, the more expensive the product, the bigger the potential repair or replacement costs.

2. How reliable is the product?

If the product you are buying is highly reliable, it really doesn’t make sense to gamble on an extended warranty. As an engineer, I know that with most electronics, if the product is functioning past the original manufacturer’s warranty period, the odds are excellent that the product will last a good long time. Many electronic products that break after the warranty period also tend to be obsolete or outdated anyway, further negating the need for repair or replacement.

According to this Consumer Reports article, here are the average 3- to 4-year repair rates for various items:

Laptop computer 43%
Refrigerator: side-by-side, with icemaker and dispenser 37%
Rider Mower 32%
Lawn Tractor 31%
Desktop Computer 31%
Washing Machine (front loading) 29%
Self-propelled mower 28%
Vacuum cleaner (canister) 23%
Washing Machine (top loading) 22%
Dishwasher 21%
Refrigerator: top and bottom freezer, with icemaker 20%
Gas Range 19%
Push mower (gas) 18%
Cooktop (gas) 17%
Microwave oven (over the range) 17%
Clothes dryer 15%
Camcorder (digital) 13%
Vacuum cleaner (upright) 13%
Refrigerator: top- and bottom-freezer, no icemaker 12%
Range (electric) 11%
Cooktop (electric) 11%
Digital camera 10%
TV: 30- to 36-inch picture tube 8%
TV: 25- to 27-inch picture tube 6%
TV: flat panel, LCD 3%
TV: flat panel, plasma 3%

If the reliability figure is low enough for you, then it might make more sense to take your chances and pass on the extended warranty.

3. Who is using the product?

This one is very important and often overlooked. Product reliability numbers assume operation under normal conditions. But even highly reliable products will break when subjected to users who don’t operate the product as intended. For example, my son Matthew tends to be very hard on electronics. For that reason, the Honeybee and I always made sure we bought the extended warranty on all of his electronic games and music players. Without fail, we have made claims (sometimes multiple times) on almost every device my son has ever owned. Parents who are buying electronics for their young children would be wise to keep this in mind.

4. How much is the warranty?

Consumer Reports recommends that you don’t pay more than 20% of the product purchase price. As a point of reference, the retailer I bought my barbecue from offered a 2-year extended warranty for roughly 15% of the purchase price, before taxes. The more expensive the warranty, the less sense it makes to simply take your chances.

If you do decide you need to get an extended warranty:

1. First see if your credit card already offers similar coverage for free. Many platinum and gold cards already offer this service.

2. Shop around for the best price and negotiate; similar warranties are sold at different prices. As an example, PC World noted a while back that a four-year plan for a Sony rear-projection TV set costs $400 at Best Buy, $525 at Circuit City, and $600 at CompUSA.

3. Determine if the warranty includes shipping charges. Many warranties do not cover shipping charges if the product needs be sent in for service. Shipping can be expensive for large items like televisions and computers, so you’ll need to take this into consideration.

4. Read the fine print. Extended warranties usually begin the day you purchase a product, so it overlaps with the standard warranty for a year. For example, a two-year policy gives you only one year of additional coverage.

And if you’re still on the fence…

Do what I do. Provide your own warranty protection service by keeping a small savings account to cover necessary product repairs or replacements for all of the products you buy that need it. After all, why give your money to somebody else to cover you in the off-chance that the product you are buying breaks, when you could be earning interest on that money instead?