When purchasing a new appliance or electronic gadget, you’ll likely be asked to purchase a service contract for an additional fee. Are these policies worth the money? Or should consumers simply say no?
What is a service contract or extended warranty?
These policies, which also can be called protection plans or guarantees, offer additional coverage on top of the standard guarantees included by the manufacturing company. Usually, they begin when the initial policy expires and last for a certain number of months or years.
When do I buy it?
For the most part, these policies are obtained at the time of purchase. However, you can typically purchase one at any point before the original manufacturer warranty expires – just be prepared for a higher cost.
What do service contracts cover?
These types of policies can cover parts and labor, but may not cover parts broken through normal wear and tear. Read carefully to find out if accidental damage is covered. Also, note if the consumer must pay for repairs upfront and wait to be reimbursed.
Use reviews as a deciding tool.
Read reviews about both the manufacturer and the specific item you are considering to see how they perform over time. Avoid purchasing appliances and brands that have recurring problems.
How well do you take care of things?
If you tend to be hard on your belongings, a warranty might be worth the additional cost. For example, a service plan may be worthwhile on a cell phone purchased for a child or teen.
Who is the warranty company?
Research the warranty company to see what types of repairs they do, how well they respond, and how satisfied consumers were with the repair. Pro tip: Many companies hire third-party vendors to provide extended service.
What do the experts say?
Consumer experts typically advise against the purchase of service contracts. Most of these extended warranties go unused. Often, consumers forget they have the extra coverage. Additionally, the coverage may be subpar, requiring high deductibles to be paid. As an alternative, most financial experts say consumers should pay for repairs out of a robust emergency fund.