Extended Warranties: Good Deal, Or Cash Grab?

When we downsized a couple of months ago we had to dispose of most of our furniture, as it just would not fit in our new home.  As a result, we have been doing a lot of shopping lately!

I’m not normally much of a shopper, so I was surprised that almost every transaction ended with a request to purchase an extended warranty.

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Some sales associates just mentioned it almost in passing (at Toys’R’Us for a children’s toy, for example).  Others gave DIRE WARNINGS about the high cost of repairs should the item break down within the next three to five years.

What’s this thing called an extended warranty?

Extended warranties are also called service contracts or maintenance agreements.  They are offered to consumers in addition to the standard warranty on new items, particularly large appliances, electronics, vehicles and, now, even furniture.

They have an extra cost – usually a percentage of the regular retail price – and are offered for multiple years.

The indemnity is to cover the cost of repairs to the item and may include replacement if it’s not economical to repair.  Make sure you read the terms and conditions.

Why are some salespeople so pushy?

Retailers may push hard and strongly urge you to buy their plans because they are a cash cow for them.  Stores may keep 50% or more of the cost, with salespeople reaping a nice 15% commission for themselves.

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Is this something you need?

Repairs may be covered by the manufacturer’s warranty so, even though these warranties are becoming shorter all the time, you may still be buying duplicate coverage.

In the first year the consumer must deal with the manufacturer anyway if there is a malfunction, so a 5-year extended warranty really is only for four years.

Some retailers (e.g. Sears, The Brick) try to sweeten the deal by offering to give your money back if you don’t make a claim.

Check the terms.  You often have only 90 days after the warranty expires to make a claim, and often you only get a credit on your next purchase (within a certain time frame).  Others may give a store gift card.

Sometimes the extended warranty can let you down

Read it carefully to see explicitly what is covered and what is excluded.  Your claim can be denied.  Some people have been dissatisfied with the repairs, or the length of time they had to wait for replacement parts.

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We had a LazyBoy sofa that had extended coverage (it was an insurance claim).  I had accidentally spilled nail polish on the seat.  After trying to clean it off myself with no success, I made a claim.

First we had to turn the sofa upside down to see what the fabric content was – no easy task, it was heavy!  We emailed the manufacturer’s representative who was in the United States.  We waited several days for approval, and several more days for a repairman to appear.

He tried different solvents but was unsuccessful in cleaning the seat.  What do I do now?  Will they replace the sofa?  Unlikely, he said, they will replace the seat cushion fabric and it may not match exactly.  Say, what???

What other options do you have?

  • Buy reliable products.  Do your research by checking Consumer Reports and online reviews.  Read the manufacturer’s warranty.
  • Make sure you check out all the components thoroughly when you bring it home.  If you don’t make ice in your new refrigerator for two years and then find the ice-maker doesn’t work, it’s your own fault.
  • What is the retailer’s return policy?  Some refuse to accept defective merchandise and insist you return the item to the manufacturer. If you run across this policy you should consider shopping elsewhere in the future.  In my case, the retailer (Leon’s) replaced a defective glass stove top.  I returned dining room chairs three times to The Brick before I was satisfied with them.
  • Contact the manufacturer and they may replace your item for free, or at a low cost, especially if there’s a known problem affecting many customers.  When my Keurig coffee maker quit working, I called the 1-800 number and they sent out a brand new pot, even though it was a bit past the warranty period.
  • Your credit card may have you covered if you used it for your purchase.
  • Put the money you would have paid for the service contract into a savings account to cover the cost of a potential repair.  If repairs are not needed, you’ve got some money towards your next purchase.

Final thoughts

Extended warrantees have become common “end-of-sale” add-ons.  Some consumers swear they have saved a lot of money in costly repairs and are glad they purchased one.  You can bargain with the retailer for a lower price if you want it.

However, Consumer Reports (and many financial writers) advise against purchasing extended warranties. Sources say that they are enforced only 12% to 18% of the time.  Products seldom break within the service plan window and repairs may not be that costly.

The manufacturer’s warranty will cover most items.  If you buy a dud, you’ll know it within a few weeks or months.  Otherwise, furniture and appliances (and vehicles) should last a long time.  Small electronics change so much, and have really come down in price, that most people will just buy a new replacement.

Related: Why today’s appliances look good, but don’t last

In my opinion, buying an extended warranty sends the message to the manufacturer that they can limit their own coverage.  You shouldn’t have to pay extra to get a manufacturer, or a retailer, to stand behind their products.

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  1. xoxox on September 17, 2014 at 7:18 am

    There are some credit cards that double the warranty on products purchased with them. This is a better solution than extended warranties, many of which include so many hoops one must jump through to make them worth less than the paper they are written on. It is also generally recommended that extended warranties on cars are unnecessary, unless you know of a particular problem that exists in the model you are purchasing (which of course begs the question ‘Why are you buying it?’). Also wrt LazyBoy “Yikes”…Guess I know where I’ll never shop for a sofa.

    • Boomer on September 17, 2014 at 9:05 am

      @xoxox: Yes, some credit cards have good warranty protection if used for purchase. People don’t generally read the terms and conditions, but it’s worthwhile to know if you’re covered.

      As for LazyBoy, the damage was my fault, not their’s, but I’ll never get a furniture warranty again.

      For my latest couch purchase I got the same spiel about all kinds of coverage.

      Me: Will you replace it if it gets scratched up by my cats?
      Salesman: It’s absolutely covered!
      Me: Hmm..I don’t think so.

  2. Barry on September 17, 2014 at 8:08 am

    Yes, my Capital One Aspire Cash MasterCard doubles most manufacturers warranty up to two years. I’ve never had to use it (yet) and know there are some limitations/exclusions (like cars and I think electronics), but as one of many features on this card, it’s good to know it’s available.

  3. Tawcan on September 17, 2014 at 11:49 am

    Yeah these extended warranties are just a cash grab for the retail stores. If you have a credit card that doubles manufacturers warranty then there’s really no point getting these extended warranties.

    Furthermore, the warranties often have very strike conditions so not everything’s covered.

  4. Kathy Waite Eureka Investor Guidance on September 17, 2014 at 1:08 pm

    Small town Saskatchewan there is no one here to fix item anyway. Staples and London Drug tell us to pack it up and want to send it off to the manufacturer for weeks. Last time waited on a printer for 3 weeks to be told , yes its broken but we don’t make that one any more and offered a credit towards a new one( umm….. last 2 of your brand died ……not going there again ) I cannot manage without laptop / cellphone / printer and end up buying another one to tide me over anyway.

    Just found out the warranty on my BMW clear coat required me to take it in every 2 years and have someone there sign a card marking any problems , submit to warranty company. Guy who sold me it left , no one mentioned it at any of the oil changes or recalls . Car now 3 years old.
    I agree with Marie too much small print too many ways they can avoid paying out.

  5. Dan @ Our Big Fat Wallet on September 17, 2014 at 5:54 pm

    Aside from headphones I generally avoid extended warranties. They are usually not worth it and can add a significant amount to the total cost (ie. vehicles)

  6. Barry Choi on September 17, 2014 at 7:27 pm

    When I worked retail my main motivation to sell warranty was strictly the commission. To be fair the replacement policies were quite good it’s just the odds of you actually needing to claim it was quite rare.

    • Boomer on September 18, 2014 at 9:37 am

      Barry, I used to feel sorry for the sales staff who pushed the extended warranties on electronics during the Christmas buying season and then the consumers returned the products afterword. What happened then? Was their pay docked the commission amount?

      • Janet Morningstar on June 26, 2016 at 6:56 am

        Hi Boomer.

        As a former furniture sales associate for a large furniture company, I can say that yes, in the industry, if a product is returned, the commission the sales associate received on that product and any commission they received on the extended warranty if purchased, is docked from their next pay. It’s only fair. Why should you receive commission on something that the company didn’t sell?

        As far as pushy sales people go, commission is how they put food on the table. Each sales person is assigned a customer as they come through the door and are viewed with cameras at the door as they come in. If you walk away from your customer or “drop” them as it is seen, another salesperson has the right to move in and “take” that customer. That is why the sales person follows you through the store.

        As far as the extended warranties go, yes, the company makes a lot of money on these. It’s not a crime to make money. You might never use it, and it might come in handy. Please do carefully read the fine print to ascertain whether or not you feel that the peace of mind is worth it.

  7. Sean Cooper, Financial Journalist on September 20, 2014 at 7:49 pm

    I’ve actually had a good experience with extended warranties. We had a TV set that broke a week after the warranty ended. The store was nice enough to honour it. Too bad it broke 2 years later. Besides TV sets, I usually skip on extended warranties.

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