Extended Warranties Explained: When They Can Make Sense
How extended warranties and service contracts differ from manufacturer warranties, and the questions to ask before you buy one.
In this guide
Key takeaways
- An extended warranty or service contract costs extra and is sold separately from the product.
- It may overlap with the manufacturer's warranty you already have.
- Check the cost, coverage, exclusions, claims process and who stands behind it.
- Setting money aside for repairs can be an alternative.
Introduction
When you buy a TV, laptop, appliance or car, you're often offered an extended warranty at the checkout. It can sound reassuring, but it isn't always good value. Understanding what you're buying helps you decide.
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Warranty vs extended warranty
- A manufacturer's warranty comes with the product at no extra cost. It's the maker's promise to repair or replace the product if certain problems happen within a set time.
- An extended warranty or service contract costs extra and is sold separately. The Federal Trade Commission explains that it's different from the warranty that may automatically come with a product, and may cover different issues.
In other words, the name can be confusing. What matters is what the contract actually says it covers, who provides it and what it costs.
Check for overlap first
Before buying extra coverage, check what you already have:
- The manufacturer's warranty: how long it lasts and what it covers. An extended plan that starts at the same time may duplicate it for the first year or more.
- Implied warranties: state laws generally give you some basic protection that products will work as they should.
- Credit card benefits: some credit cards extend manufacturers' warranties on purchases made with the card. Check your card's benefits guide.
- Home insurance or other plans you may already pay for.
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Not now, show me another guide →What to check before you buy
The FTC suggests getting information about:
- Costs: the upfront price, plus any deductibles, service fees or shipping costs for repairs.
- Reputation: who actually provides the coverage. It's not necessarily the manufacturer.
- Length of coverage: work out the yearly or monthly cost.
- What's covered: whether it includes accidental damage, and which parts and repairs are excluded. If it isn't listed in the contract, assume it's not covered.
- The claims process: how to make a claim, who does the repair and whether you have to send the item away.
A simple way to judge value
Example: a $600 appliance comes with a one-year manufacturer's warranty. You're offered a three-year extended plan for $120, which overlaps with the first year. That's effectively $120 for two extra years, or $60 a year, plus any service fees.
Ask yourself: how likely is it to need an expensive repair in years two and three? Would a repair cost more than $120? Would you replace the item instead?
The FTC notes that an extended warranty may not be worth the cost if a product isn't likely to need repairs. Product reviews can show whether a model often needs expensive repairs.
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When an extended warranty may make sense
- The product is expensive and repairs are known to be costly.
- The plan covers accidental damage that you're likely to need, such as drops for a phone or laptop.
- Replacing the item would be difficult for your budget.
- The provider has a strong reputation and a simple claims process.
An alternative: set money aside
The FTC points out that putting money in a savings account to cover future repairs can be a better option for some people. If nothing breaks, you keep the money. If something does, you have funds ready.
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Beware of extended warranty calls and mailers
After you buy a car or appliance, you may get calls, texts or letters warning that your warranty is about to expire. The FTC says these marketers are usually not related to the company you bought from, may use high-pressure tactics and may ask for payment before showing you the contract. Telemarketing calls from companies you have no connection with are probably illegal.
Don't give personal or financial information to unexpected callers. If you're interested in coverage, research the company and get the full contract in writing first.
Questions to ask before you sign
- Who actually provides the coverage, and how long have they been in business?
- When does the coverage start, and does it overlap with the manufacturer's warranty?
- Is there a deductible or service fee for each repair?
- Who does the repairs, and do I have to ship the item or wait for a technician?
- What happens if the item can't be repaired? Do I get a replacement, a store credit or a cash value?
- Can I cancel, and will I get a refund?
- Does the coverage transfer if I sell or give away the item?
Get the answers in writing, and keep a copy of the contract with your receipt.
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How to make a claim
- Keep your receipt, the contract and the product's serial number together.
- Contact the provider as soon as the problem starts, and follow their claims steps.
- Write down the date, the name of anyone you speak with and any claim number.
- Don't arrange your own repair first unless the contract allows it, or you may not be reimbursed.
Conclusion
Extended warranties and service contracts can provide peace of mind for some expensive products, but they often overlap with coverage you already have. Compare them with the manufacturer's warranty and your card benefits, read what's excluded, check who stands behind the plan, and consider whether saving the money instead would serve you better.
Common questions
Can I buy an extended warranty later?
Often, yes. Many plans can be bought after the purchase, sometimes within a set time. Check the terms.
Can I cancel an extended warranty?
Many plans allow cancellation, sometimes with a partial refund. Read the cancellation terms before you buy.
Do credit cards include extended warranties?
Some do, on purchases made with the card. Benefits vary, so check your card's guide to benefits.
Sources and further reading
This guide is general information. Prices, warranties and policies change, so check the seller's current terms before you buy.
