The Shrinking Warranty

If you have recently purchased an electronic device or major appliance from Best Buy, Circuit City, Sam's Club, or even Wal-Mart chances are you were offered an extended warranty for an additional fee. Depending on the original price of the item this fee can range from $12.99 to $700. Are you inclined to answer yes and purchase the added warranty? Here are some tips to help you evaluate the value of the extended warranty purchase.

In a recent article published in my local newspaper William Mauldin described the point of purchase extended warranty as "almost a license to print money" for the seller, not the buyer. He states that up to 50% or more of the profits from the sale of the extended warranty end up in the pockets of the seller. Extended warranty sales are big business, totalling $16 billion in 2005. A large portion of the bottom line profits from Best Buy and Circuit City are now generated from the sale of extended warranties, not products.

It is true that the warranties issued by the manufacturers are shrinking in efforts to keep the price of goods competitive with foreign labor and low cost imports. So what is the prudent buyer to do?

• Do read the warranty, know its conditions and provisions. Sometimes the product must be returned in original packaging.
• Know if your credit card account automatically doubles the length of the manufacturer's warranty (some do). If so, make the electronic or major appliance purchase on the card, but pay it off immediately and keep the reciept.
• Do send in the warranty card, often requiring a copy of the purchase receipt for validation.
• Avoid purchasing extended warranties altogether except for laptop computers, plasma televisions, and watches.

Less than 10% of digital cameras require repairs within the first three years of purchase. Breakdowns within the first three years are also unlikely for most major household appliances like refridgerators and washing machines. Repair costs are relatively modest. If you have a lemon, it will most likely become apparrent within the time frame of the original manufacturers warranty.

So the moral of the story is - except in rare instances say no to the extended warranty offer. Usually it's just money out of your pocket into theirs. You are better off taking your chances and paying for the occaisional repair yourself.

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