The Consumers Guide to Extended Warranties

Walk into any big box retailer and attempt to buy just about anything and you will quickly be offered an extended warranty, replacement agreement or service contract. Consumer Reports and various other consumer groups would have you believe that these extended warranties are nothing but a scam to separate more of your hard earned money from your pocketbook, but this is not altogether true. The aim of this article is to give you the basic facts needed to make an educated and informed decision.

The Good

These extended warranties can be a blessing for many consumers. Think of it as cheap insurance (although the retailers will swear up and down that it is not insurance for legal reasons) for your medium to larger purchases. In the case of service agreements, repairs are often done in your home and parts and labor are included. Often they will include yearly maintenance checks to keep your equipment in tip-top shape before there is a problem. If you are not mechanically inclined and don't relish the idea of paying for part and or labor charges (which start at about $70 an hour) or having to replace the item altogether, then a service agreement is in your best interests.

Replacement agreements are usually offered on low to middle end electronic items. The benefit of these agreements is that if there is a problem with the item, the retailer will replace it for free with a brand new one and they usually cover the item for one to two years. If you find yourself buying the same item over and over again due to breakage (for me it's the computer headphone/microphone headset) purchase a replacement agreement and be done with it. This can save you an awful lot of money in the long run.

Most of the better service agreements include a "lemon" clause. If you have the same item worked on for the same problem three or more times, they will usually replace the item with a spanking new one.

The Bad