News from the Tennessee Valley Business

Are extended warranties good idea?

By Eileen Alt Powell
AP Business Writer

Q: I plan to buy an expensive flat-panel TV this holiday season. Should I invest in an extended warranty for it?

A: Extended warranties, which sometimes are called service plans, are basically insurance policies that consumers can buy from retailers to protect against costly repairs or service fees after the manufacturer’s warranty expires.

While investing in an extended warranty might seem to be a logical step for someone buying an expensive appliance or electronic device, experts say that’s not necessarily the case.

Tod Marks, a senior editor with Consumer Reports magazine, said that consumers are sometimes pressured to consider warranties because they are profitable for retailers.

“The markups on many products are small, so retailers can sometimes make more selling extended warranties than selling the products themselves,” he said.

Studies have shown that on high-end electronics, the price of an extended warranty can cost the equivalent of a quarter of the item’s price. For example, extended warranties on plasma-screen TVs selling for $1,500 to $1,600 are about $400.

From the consumer’s point of view, he added, “it can be very expensive insurance when you look at it in terms of the likelihood of something going wrong and the cost of the premium.”

Marks said that Consumer Reports’ studies of hundreds of products indicate that products tend to be fairly reliable and durable. Buyers can increase that likelihood by picking brands that have tested well in the past, he added.

In purchasing a warranty, there’s also an assumption that if a product breaks, the cost of repair will exceed the cost of the warranty. That’s a long shot, Marks said.

“Most of the time, when products break and people elect to have them fixed, the cost of the repair and cost of the warranty turn out to be a wash,” he said.

Marks said that many people don’t bother to repair products that break because the items have become obsolete or the owners forget they have a warranty — both of which argue against an extended warranty.

Eric Arnum, editor of “Warranty Week,” a newsletter that covers the $16 billion industry, said that protecting against costly repairs on a product was not the only reason to consider an extended warranty.

“Do they come to your home and fix it for you? Do they pay for shipping it somewhere? Can you get a loaner?” he asked. “That depth of service has value for some people.

Copyright 2005 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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