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The truth about extended warranties

The truth about extended warranties
© Krasimiranevenova | Dreamstime.com

If you buy a new smartphone, tablet, computer, TV or even 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 money-maker for stores, otherwise, they wouldn't push them so hard. But does that mean that they're a bad deal for you? It depends on a number of factors that we'll look at. There are also some alternatives to in-store extended warranties you should know.

Alternatives

Before you even consider any 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 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. It 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 for your phone. Not only that, but the company covers more "circumstances" that can cause a phone or gadget to break than most stores.

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 surprising data.

Do you need a warranty?

Consumer Reports collected information on gadget failures and it shows that most gadgets don't fail during the extended warranty period. Most manufacturing problems with a gadget will 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. So 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. It might not cover common types of damage or wear and tear, 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 fast. 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 might set the money you would have spent aside. If your gadget breaks, you can use the money for repairs. If your gadget never has trouble, you can put the money toward 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 is this: 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 do 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, which means it overlaps with the factory warranty. That's just wasted money.
  3. Never pay more than 20 percent 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.

Do you buy extended warranties for your products? Have you ever used one? Let us know your stories and thoughts in the comments.

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