Skipping This Holiday Expense Could Save You Hundreds This Year

Extended warranties might not help in the long run.

A warranty can assuage the anxieties of worrywarts with its promise of coverage of possible defects. It’s a factor that holiday shoppers need to consider when buying gifts or appliances. A warranty can mean saving yourself the trouble of having to discard and buy an entirely new product, but are extended warranties actually necessary?

The Washington Post found that extended warranties can cost as much as the repairs themselves. When comparing the price of an extended warranty on a dishwasher versus how much repairs would cost, the difference was less than $2.

What Is an Extended Warranty?

An extended warranty simply lengthens the terms of your standard warranty, which means your product is covered for a longer period of time. Some vendors phrase extended warranties as “extended service contracts,” “service agreements” and, in the case of cars, “mechanical breakdown insurance” or “vehicle protection plans.” Extended warranties on a car might seem especially attractive because of the costs associated with auto maintenance.

Extended warranties are often pushed onto buyers before the final purchase. This is because store employees are incentivized to sell extended warranties because of the commissions they can earn from them. As of 2017, the service contract industry was worth $40 billion.

Related: 50 Stores With the Best and Worst Return Policies

Should You Purchase an Extended Warranty?

To put it simply, probably not.

If you regularly purchase extended warranties, you’re not alone. A 2016 report from The Warranty Group, which provides warranty-related services to companies, found that about one-third of survey respondents bought a protection plan along with their purchase.

However, The Washington Post’s discovery that extended warranties can cost pretty much the same as repairs might give money savers pause. Of course, if you never end up using the warranty, it actually costs you money. Other reasons that might dissuade one from an extended warranty include:

  • Not all extended warranties are an actual extension: The Federal Trade Commission notes that “Some service contracts duplicate the warranty coverage that the manufacturer provides; some cover only part of the product; and some make it nearly impossible to get repairs when you need them.”
  • There can be exclusions: Warranties can be limited in scope for what they actually cover, which could lead to issues should you ever need to use your warranty.
  • Fees: Making a claim against your warranty can incur a fee or a deductible, which might mean an extended warranty is costlier than repairs.
  • Dealing with third-party companies: Retailers might sell you an extended warranty that’s handled by a third-party rather than the manufacturer, which can lead to problems with communication and costs.

There are valid reasons to get an extended warranty, but when you consider the possible complications they come with, it might be best to hold off.

Read more about 12 expenses — like extended warranties — that successful people don’t waste their time or money on.

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