Extended warranty

From Academic Kids

An extended warranty is a lengthened warranty offered to purchasers of products. The extended warranty may be offered direct from the administrator, the retailer selling the product or by the manufacturer for an additional fee. These warranties are normally offered for above and beyond the time period of the manufacturer's standard warranty and are not "double coverage". For example, a store may offer an extended warranty for a refrigerator for two years, past the manufacturer's one year warranty. Always, extended warranties add to the purchase price of the item, with prices being relational to the ticket price and reliability of the item (i.e. the more expensive the item, the more the extended warranty costs).

An extended warranty is pitched like an "insurance policy" in case the product breaks down after the manufacturer’s standard warranty expires. It promises more protection. However, in most cases, extended warranties are not worth the extra cost.

Extended warranties are something of a cash cow for those who offer them. Few items that obtain extended warranties ever need replacing or repairing and, if they ever do, many consumers forget they purchased the warranty or know how to invoke it: often the customer just ends up buying a new replacement product. In addition, the offerer of an extended warranty may claim the product was abused or not used in a manner consistent with "normal wear", handling typically not covered under the warranties. For the few instances where retailers do have to honor an extended warranty, the volumes of unused or unenforced extended warranties more than amply cover the cost of replacing returned items.

Most consumer advocate groups, such as the non-profit Consumers Union, advise against purchasing extended warranties. David Butler of the Consumers Union says, "The extended warranty is definitely in the best interest of the company, but isn't often in the best interest of the consumer." He adds, "The company is much more likely to profit from the extended warranty than the consumer is." In many cases, if the item does need repairing, the cost of repairs will be less than or equal to the cost of the extended warranty. In most cases, the manufacturer's standard warranty is sufficient.

Consumers Union says only two products deserve extended warranty consideration: projection TV's and digital camcorders. Both are expensive to repair and need repairs frequently.

Extended warranties in the UK

The extended warranty market has been subject to several investigations. In 2002 the Office of Fair Trading decided that self regulation of the industry had failed and passed the case onto the Competition Commission. This concluded that the market was not acting in the interests of consumers.

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