Should You Buy Extended Warranty

It seems like every time we buy something, the salesperson tries to get us to buy an extended warranty or extended service contract along with it. The reason is simple: margins on consumer electronics are painfully thin for retailers. The money they make by selling the extended warranty can account for much of their actual profit.And profitable they are.

According to an article in Business Week, the profit margins on extended warranties run between 50% and 60%. That's huge!But do we consumers really need them? There is a lot of debate on whether they really do the consumer any good. With margins that large, the companies obviously aren't paying out even half as much as they are talking in. In our opinion, whether an extended warranty might be advisable depends on what the product is and how expensive it is.

Does It Have Moving Parts?

The big question to start with is, does it have moving parts? Electronics tend to either fail right away or keep working for a long, long time. Products such as stereos are all electronics and have no moving parts other than a few knobs and buttons perhaps. Therefore, we tend to advise not spending money on an extended warranty for such products.On the other hand, a product such as a multi-disk CD player does have mechanical parts in it.

If anything were to go wrong, it is more likely to be with the mechanical parts, so we are more likely to consider an extended warranty for this type of product.The products most likely to be damaged are portable items such as MP3 players, CD players, cell phones, etc. Of course, damage is most likely to occur from dropping them or other rough handling, and most extended warranties don't cover that.

How About Computers?

Personal computers are complex systems with electronics and moving parts, including the hard drive, fan(s), and CD/DVD drives. Plus, they are more than the sum of their parts. We have time invested in them loading all the software and getting them all set up the way we want them. According to
the Consumer Reports 2005 Buying Guide, 27% of their readers' desktop computers needed repair (this is in a 4-year timeframe). That certainly suggests that some sort of warranty would be a good idea.A service call can be expensive, and taking a desktop computer into a service center can be a hassle, so you might want to seriously consider buying an in-home or in-office service contract along with your computer. Of course, if it's a notebook computer, you can easily take it in for service.

What to Consider

First, when buying the product, check the manufacturer's warranty first to see if it gives you the protection you want. You'll probably have to take or ship the product to an authorized service center, though.Second, check the terms of the extended warranty being offered. Don't assume it will cover what is likely to go wrong. Be sure to check that.Third, check to see if the manufacturer perhaps offers similar extended coverage for less. The retailer is marking up a policy from a third-party insurer, making their coverage cost more.

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