Are Extended Warranties Worth the Expense?

 How many times have you been asked about buying an extended warranty on a product purchase?  Probably every time you make a purchase.  Salespeople are trained to push extended warranties to “upsell,” and the extended warranties are huge money-makers for retailers (about 60% is profit according to Businessweek!) because most consumers never use them.

Here are 3 Reasons Why You Should “Just Say No” to an Extend Warranty:

  1. The manufacturer’s warranty is usually enough:  Most products come with a standard no cost warranty that covers the purchase for up to one year.  Most minor problems with a product occur within the first year, with major malfunctions occurring much later (often after even the extended warranty has expired).
  2. Cost is a consideration:  Often, the cost of the extended warranty is up to a third of the cost of the product itself.  Since consumer products generally depreciate in value very quickly, it might make more sense to keep the extra dollars and save for a future repair when or if it is needed, or for your future replacement purchase.
  3. There are other ways to get the same protection:  Many credit cards offer protection on purchases made with the card.  Many also offer to double the length of the manufacturer’s warranty.  Make sure to investigate all of the benefits you might have available through your credit card provider.

Although there are many reasons to “Just Say No,” there are a few instances when it might make sense to say yes to an extended warranty:

  • You are buying an item that is new technology or is prone to problems.
  • You are buying a refurbished product, or one that was a floor model.
  • You are buying a very pricey item that would be expensive to repair or replace; the more expensive the item, the more consideration to give the extended warranty.

And above all else, don’t fee like you need to make an “at the register” decision.  Most retailers allow you to purchase an extended warranty for up to 15 or 30 days after a purchase.  Take your time to make a good financial decision.

Sandra Adams, CFP® is a Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012 and 2013, Sandy was named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.