Why Extended Warranties Are a Bad Deal

I recently came across a photo on Facebook, posted by an angry customer whose 18-month-old appliance needed $450 worth of repairs. The answer he received from the manufacturer’s representative was, “you should have bought our extended warranty”. The customer has better options than that, which I’ll discuss below, but what about those extended warranties?

Are Extended Warranties Worth the Money?

Consumer Reports Magazine says no. When you need to repair your refrigerator, washing machine or computer, it’s both upsetting and costly. That’s why so many people are open to the idea of buying extended warranties that cover repair costs.

These extended warranties, also sometimes called service contracts or protection policies, are nearly universally criticized by consumer advocates such as Clark Howard, Consumer Reports, and others. Their advice: Skip them.

Look for the Fine Print

Extended warranties can have many “gotchas”, using contract fine print to deny coverage for almost any reason. They’ve become a major source of complaints to the Better Business Bureau and elsewhere.

“Accidental damage may not be covered. And there may be clauses that allow the company to deny coverage if, for example, you don’t follow their instructions for routine maintenance,” says the Federal Trade Commission.

Extended warranties often exclude a variety of parts. For example, Consumer Reports recently reviewed a refrigerator extended warranty and found that among the parts that aren’t covered are ice-makers, beverage dispensers, door seals and gaskets, hinges, lighting, and handles.

The company, using their warranty fine print, can ask questions like the following:

• Can you demonstrate that the troublesome part wasn’t already broken when you signed up—a so-called preexisting condition?
• Was the problem caused by a manufacturing defect or by an accumulation of sediments, rust, mildew or mold?
• Is it a cosmetic issue that doesn’t affect an item’s performance?

All of these can be reasons why a provider will reject your claim. That’s why it’s so important to thoroughly review the fine print.

Duplicating Warranty Coverage

Some extended warranties simply duplicate the express warranty coverage you have from the manufacturer, which you’re required to use first.

Along with the initial cost and deductibles, some plans charge a fee every time you make a claim.  If the plan allows you to use your own repair shop, that business typically has to obtain approval from the provider before beginning work, a big hassle that some shops might consider too much trouble.

Providers can go out of Business

Yet another concern is that providers can go out of business, leaving customers without the coverage they paid for, warns the FTC. That’s a particular issue with third-party extended warranties, as opposed to those provided by product manufacturers.

Some companies make lots of promises while hawking extended warranties, leaving the “gotchas” to the fine print, if they disclose them at all.

This doesn’t mean that all extended warranties are bad or that you can’t possibly come out ahead by purchasing one. But even the best plans likely aren’t worth the money you spend on them in the long run.

So What’s the Solution?

Earlier I mentioned there is often a better way, and there is. It is cheaper as well. Many appliance repairs are far easier to diagnose and repair than you think. Quite often, with a little help and guidance, you can do it yourself.

Neli is an online, do it yourself appliance repair company that has technicians who, through live chat and camera sharing, can walk you through the diagnosis and repair. They can also help you find the parts you need substantially cheaper than you would otherwise pay for an in-home service call. You can learn more about Neli here. Or book an appointment below.

The bottom line is that an extended warranty is quite often not worth the cost. The frustrated customer who posted the photo certainly did not seem to want to pay for that but did not need to pay the high cost of an in-home service repair either. Now, there’s a better way, and consumers are better off for it.