Don't Fall for Salesman's Extended Warranty Line
Sunday Mercury, 5 December 1999
If you have an expensive appliance in your sights, the salesman may have you in his or her sights to sell you an extended warranty to go along with the appliance. Think hard before purchasing a form of insurance which tends to be as unnecessary as it is expensive.
This is not just my opinion. The Department of Trade and Industry believes that “shoppers should resist being pressured into buying extended warranties or service contracts when they purchase electrical goods such as TVs, washing machines and fridges.”
Manufacturers generally guarantee their product for the first year. Extended warranties cover a period of time starting when the manufacturer’s guarantee expires. The extended warranty is usually for four years. Coupled with the manufacturer’s guarantee, the total coverage period is a generous five years.
But the cost of these policies is generous, too, and for many items, unnecessary. For one thing, products today are both durable and we are likely to change or replace them frequently in any event. For another, the cost of repair might be lower than the cost of the warranty, and if the item doesn’t break down at all, you will have paid nothing extra at all.
Appliances most likely to break down are those with moving parts or involving water. Washing machines are near the top of the list, and stereos and tvs and even computers are near the bottom. Many computer experts believe that if a computer is going to break down prematurely, it will do so without delay, probably within the first few weeks or months if not days. If it makes it safely through the first trimester, it should make it safely through the next five years. And even extended cover for a washing machine is poor value if, as is likely, the cost of the policy exceeds the average cost of repair.
Consumer Affairs Minister Kim Howells urges consumers to “treat extended warranties as products in their own right and consider if they will give value for money. Bear in mind that the Sale of Goods Act already gives you a right to goods of satisfactory quality and durability, and you have a claim against the shop if the goods are not. If you do want insurance, shop around. You may be able to find a better value policy or service agreement elsewhere.”
Some people feel that they get better value from policies which might cost more than an extended warranty on a specific new product but cover all of your appliances. Some credit cards offer free cover for a specified period of time if you buy the item with that card.
In their brochure, “Buying extended warranty or mechanical Breakdown insurance,” the Association of British Insurers recommends that “you should know if you are dealing direct with an insurance company or through an intermediary.”
- The ABI suggests that you should ask these questions unless you already know the answer:
- If I make a claim, will I have to bear any amount of the cost myself?
- Are there exclusions or restrictions in this policy which may apply particularly to me or my family?
- Will I be charged anything more than the premium required by the insurance company and, if so, why and how much?
In addition, you should know if both parts and labour are covered, if there is a monetary limit on any one claim, and whether or not you will have to pay an excess, the first part of any claim.
Insurance companies have to meet strict solvency requirements, and this point is emphasised by the ABI in its discussion of maintenance contracts. The company behind the maintenance contract might go bust. If it does, the contact is worthless. But with an insurance policy, “your rights under the policy are protected, even if the supplier becomes insolvent.”
The extended warranty often seems as if it is being offered by the manufacturer of the appliance you are buying. As the DTI notes, “although they are often associated with brand names, they are generally contracts for services provided by insurance companies or retailers.”
Remember that a store might back a warranty by itself and not through an insurer. Insurance schemes allow a 14-day cooling off period should you change your mind. If your scheme is backed by the retailer who then goes bust, your warranty goes bust with him.
www.robertliebman.com