Should you buy that extended warranty?

Set of home kitchen appliances in the room on the wall background. - stock photo appliance tile home tile / Getty Images
Set of home kitchen appliances in the room on the wall background. - stock photo appliance tile home tile / Getty Images

When purchasing electronics, home appliances, and other devices, many retailers now offer an extended warranty, sometimes called a protection plan or service contract. But is the peace of mind worth the extra price?

Here are BBB's tips on what to consider before you purchase an extended warranty:

Determine whether an extended warranties is worth the cost. Review the manufacturer's warranty first. Since most products already come with a free manufacturer's warranty, extended warranties often provide overlapping coverage you might not really need. For example, if you buy a washing machine with a 5-year manufacturer's warranty with decent coverage, do you really need the 2-year extended warranty offered by the store? Probably not.

Check your credit card benefits. If you make a purchase with your credit card you may already qualify for an extended warranty, free of charge. Typically, credit card companies add up to a year of additional coverage and cover the same defects as the manufacturer's warranty.

You'll need to check with your credit card company to find out if they offer extended warranties and what kind of purchases are eligible. Keep in mind that some credit card purchases will be excluded from this offer, for example, computers and cars. If your credit card does offer an extended warranty for your purchase, be sure you keep the documentation necessary to file a claim. This may include the original store receipt, the account statement that shows the purchase, and a copy of the manufacturer's warranty.

Consider the reliability of the device. According to checkbook.org, retailers typically keep 50 to 70 percent of the cost of warranties they sell. Do your due diligence and research an item before you buy it – especially if it is expensive. If most consumers report the item lasts for many years with no problems, that may help you decide if you really need the extended warranty.

Read the fine print. Before you purchase any protection plan, read the fine print. You may find there are many exclusions that make the plan less valuable. If you are worried about theft, loss, and water damage but these factors aren't covered by an extended warranty, or if you see phrases like "coverage excludes repairs due to accidental damage," you may decide the coverage isn't worth the cost.

Understand how to make a claim. You'll also want to make sure claims are relatively easy to file. If you decide to purchase an extended warranty, know what documents you'll need to file a claim and keep them somewhere safe. If the claim filing process seems extremely complicated, ask yourself if you'd even use the warranty.

Take deductibles into consideration. Purchasing an extended warranty doesn't necessarily mean any needed repairs will be free. Many extended warranties and protection plans, especially for cell phones, require consumers pay a deductible for services. Factor in the cost of the deductible, along with the cost of the plan, to decide if you'd really be getting your money's worth.

Sometimes the cost of a protection plan is the almost the same as the cost of repair, especially after you factor in deductibles. If that's the case for the item you are purchasing, it may be a wiser financial move to simply set that amount of money aside for any possible repairs instead of purchasing the extended warranty.

Find out which servicing companies you can use. With extended warranty plans, you will be limited as to what companies can make repairs or offer replacements. Find out what companies you'll be getting service from and how long it usually takes them to complete a repair. Check them out with BBB at bbb.org. You'll also want to know if the company offers in-home repairs or if you must ship your product to them. If they require you to ship the product, find out who is responsible for the cost of shipping.

Shop around for the best price. If you decide an extended warranty is worthwhile for the product you are purchasing, don't just settle for the plan your retailer offers. Many third-party companies offer insurance on electronics, home appliances and more, even after you've already made the purchase.

Watch out for scams. If you receive a robocall offering you an extended warranty for your car, appliances, or other devices, don't believe everything you hear. Extended warranty scams are commonplace and could rob you of your personal information or money. If you are interested in an extended warranty, only do business with reputable retailers, not strangers.

If you decide to purchase an extended warranty, be sure to check all the details to see if you are required to register your products or services for the warranty to take effect.

You can find more tips from BBB by visiting bbb.org/tips. You can reach BBB serving Southeast TN and Northwest GA's team at 423-266-6144.

Michele Mason is president of the Better Business Bureau for Southeast Tennessee and Northwest Georgia.

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