It's your gamble... but is it a smart bet?

by
May 23, 2000




The question of the day appears to be, “Should I buy an appliance warranty?”

I could give you a quick answer, but that would leave you uninformed.

Most after-market warranties are simply service warranties. They come into effect when the original manufacturer’s warranty has expired. They are usually not guaranteed by the manufacturer and are instead backed up either by the store or some third-party service agency. This presents a couple of problems:

Problem One: You have no guarantee that the store you have purchased the warranty from will be in business six months from now. Even some large chains, such as Incredible Universe, Fred Schmidt, Silo, and BEST have gone the way of the Dodo bird, and anyone who held a warranty with those companies will have to do some serious footwork to see who, if anyone, will still honor the service contract.

Problem Two: This is very similar to Problem One, but much more serious. You have no guarantee that the third-party guarantor of the agreement will be in business six months from now. Best of luck in finding anyone to honor the contract when the time for service arises.

Problem Three: You have no guarantee that the third-party guarantor (be it the store or service provider) will use the original manufacturer’s parts and supplies. You may have to settle for after-market parts, or even rebuilt parts. You may not be getting the same quality put into the machine that the factory put in.

Most manufacturers these days give excellent base warranties. For major appliances, gone forever is the 90-day limited warranty. These days, you are looking at three-year warranties to even lifetime warranties, depending on what you are purchasing, who makes the product and how much you’re willing to spend. Almost all of these manufacturer warranties do not depreciate the parts inside that require replacement within the warranty terms.

It is rare when a manufacturer goes out of business. When they do, they are typically purchased by a competitor who will honor the warranty and stock the necessary parts to repair the product.

Some of the manufacturers will also offer extended warranties. Like third-party service contracts, I would steer away from wasting my money on them.

I say the extended warranties are a waste of money because of the depreciated value of the product once the warranty has expired.

As an example, let’s look at a refrigerator. A GE Profile refrigerator/freezer is advertised in this past Sunday’s paper at Circuit City for $494.97. It comes with a five-year manufacturer’s warranty against defects. An extended warranty costs an additional $79.90, and goes for another five years.

Five years from now, that refrigerator may be worth $100.00 – if you’re lucky. So far, you are ahead $20.10.

However, since the compressor failed, you lost $85.00 worth of meat in the freezer and another $80.00 in perishables in the refrigerator. You are also waiting for several days for the service contractor to come out, in which case you are eating at restaurants for several days.

On the other hand, you may be thinking that some poor sucker who didn’t spend the $79.90 is now stuck buying a new refrigerator. Well, maybe. That person may have paid for a $60.00 repair, in which case he or she is still ahead of you by $19.90.

Or, they may have gone ahead and purchased a new refrigerator, in which case they’ve got a brand new warranty and a brand new refrigerator to boot. You, on the other hand, are stuck with the constant repairs of a failing refrigerator because you want to get the most out of your extended warranty.

In reality, most major appliances far outlive their warranty periods. My parents had a refrigerator that ran fine for nearly ten years and came with only a five-year warranty. They went ahead and purchased a service contract and didn’t use it until the tenth year. The extended warranty was expensive, and when the refrigerator finally failed, it seemed that everything suddenly went wrong. This made the idea of keeping the refrigerator and repairing it constantly (even though repairs were free) not worth the trouble. Mom and Dad soon bought a new refrigerator.

When you purchase an extended warranty, both the manufacturer and the store know the product will far outlive the warranty period. However, they are banking on your fears that the product will fail as soon as the warranty period expires, and this is a chance for them to pocket that extra money for a service they will most likely never have to provide.

It’s like gambling – you’re betting odds the appliance will fail, and the manufacturer is placing his bet on the fact it will most likely not fail.

When I purchase appliances, I stick with the manufacturer’s warranty and forget purchasing the extra warranties. They simply aren’t a good investment for my dollar, and aren’t a smart bet.



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