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The truth about extended warranties

If you buy a new smartphone, tablet, computer, TV or even a car stereo, it’s very likely the salesperson will try to sell you an extended warranty. You never know when something terrible might happen to your gadget, after all.

It’s no secret that extended warranties are a moneymaker for stores; otherwise, they wouldn’t push them so hard. But does that mean they’re a bad deal for you? It depends on a number of factors — and, of course, there are some alternatives to in-store extended warranties.

Alternatives

Before you consider purchasing an extended warranty, check with your credit card company. It might give you an extended warranty or extra benefits automatically when you buy with certain cards. Some cards will even extend the manufacturer’s warranty another full year.

You also might want to shop around for the item you want. Some stores will throw in an extended warranty or extend the factory warranty for free when you buy from them. It’s a good way to get extra protection without paying.

Another way to get an extended warranty for less is to check with companies like SquareTrade. SquareTrade offers third-party warranties on electronics from phones and tablets to TVs and appliances that can be more comprehensive and cost less than a store’s extended warranty.

Buying a two-year extension on your smartphone’s warranty, for example, will end up costing you at least $240 through the manufacturer. If you’re willing to put in a little time on SquareTrade’s website, you can pay $5 monthly to protect your phone or just $99 for two years.

If your phone breaks, simply mail it to SquareTrade. You’ll receive an overnight replacement. Not only that, but the company covers more “circumstances” that can cause a phone or gadget to break than most stores do.

That’s a good deal if you’re accident-prone, but most people might not even need a warranty in the first place. Let’s take a look at the data.

Do you need a warranty?

Consumer Reports collected information on gadget failures, and their research shows most gadgets don’t fail during the extended warranty period. Rather, many manufacturing problems with a gadget show up in the first year — during the manufacturer’s warranty period.

If your gadget makes it through that first year, it often won’t see wear-and-tear failures until after the extended warranty expires. As long as you don’t destroy it some other way, an extended warranty typically isn’t needed.

Even if you have a problem during the extended warranty period, most extended warranties aren’t as comprehensive as you would hope, so it’s always a good idea to ask questions and find out exactly what the warranty covers.

Don’t forget that prices on many types of electronics drop quickly, too, so by the time a gadget does fail, the cost to repair it — or even replace it — might be less than what you paid for the extended warranty itself.

Instead of paying for a warranty, you can always set aside the money you would’ve spent on one. If your gadget breaks, you can use that money for repairs. If your gadget never has trouble, you can put that money towards a new one.

Still, there are some cases and electronics where an extended warranty makes sense.

When to buy an extended warranty

Our rule of thumb? Plan for an accident before you regret it. If you’re buying a laptop for travel, for example, an extended warranty that covers theft, drops and spill damage might be a good investment.

If you want to buy an extended warranty elsewhere, there are a few rules to follow:

  1. Make sure you read the fine print to know exactly what situations the warranty does and doesn’t cover.
  2. Check the extended warranty start date. Many extended warranties begin when you buy the product, so they overlap the factory warranty. That’s just wasted money.
  3. Never pay more than 20% of the cost of the item on an extended warranty.
  4. For larger electronics, like TVs and appliances, make sure the warranty includes in-home repair or free pickup and transportation to get the gadget back to the factory.

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