The Super Bowl is big, a big sporting event that provides a big excuse for consumers to buy a big-screen TV. While many consumers will spend hours researching the type of television they want, they may be blindsided at the cash register by the question of buying an extended warranty for the TV set.
The decision is not just for TVs. Extended warranties, also called service contracts, are offered on everything from cell phones and refrigerators to cars and homes. Typically, an extended warranty lengthens, and in most cases overlaps, the manufacturer’s warranty.
It’s a huge business. Americans bought 250 million warranties in 2010, according to the Service Contract Industry Council. “We continue to see the number of contracts sold nationally increase,” said Stephen McDaniel, a council spokesman.
Despite their apparent popularity, service contracts are generally panned by consumer advocates. Their advice: Just say no to buying extended warranties.
Consumer Reports, for example, doesn’t recommend buying them in any product category.
But the warranty industry is evolving, with new coverages, prices and providers that might provide better value. The Service Contract Industry Council is working with state governments on laws aimed at providing more consumer disclosures about warranties, McDaniel said.
Focusing on extended warranties for electronics, here’s what you need to know.
What consumer advocates say:
•Most products don’t break during the warranty period. If they malfunction right away, they’re covered by a store return policy or manufacturer warranty.
The cost of the warranty is almost as much as the cost of a repair. So, buying a warranty is like paying for most of a repair, whether you need one or not.
You can self-insure by setting aside the same money in a repair fund. If the item doesn’t break, you get to keep the money.
As a general rule, you shouldn’t buy insurance for little things, only for financial disasters. If a repair cost won’t wreck your finances, you probably don’t need the coverage.
Some higher-tier credit cards will extend the manufacturer warranty for free if you purchase the item with the card.
The benefit of a warranty is mitigated if you have to pay a deductible.
A warranty might call for replacement with a refurbished unit, not a new one.
The extended warranty usually starts when you buy a product, largely duplicating the manufacturer warranty for some length of time.
You know warranties are a bad deal for consumers because electronics retailers make a huge share of their profits from them.
What the warranty industry says:
•Warranties extend your protection, providing peace of mind for typically 10 to 20 percent of the cost of the item. If a warranty costs more than that, make sure there’s a good reason, McDaniel said.
Extended warranties usually offer service and protection a manufacturer warranty does not. That includes in-home repair or replacement, generally quicker turnaround for repairs, around-the-clock and weekend technical support, coverage for damage caused by power surges and the ability to transfer the warranty.
If you regret buying a warranty, you can cancel, typically within 30 days, for a full refund, not a prorated one. That applies in most states, McDaniel said.
Repair prices are often more expensive than warranty costs. An LCD television costing $550 would typically have a service-plan cost of $55 to $110, while the cost of repairing a main system board, for example, might cost $375, according to the Service Contract Industry Council.
A self-insure repair fund is a good idea, but, as a practical matter, consumers won’t set aside money for repairs.
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