Consumer Basics

Service Contracts and Extended Warranties

Is it worth it to pay extra for that extended warranty?

Here’s the scenario: in preparation for your 4th of July party, you pop over to the local sports store on your lunch hour to buy the all-in-one badminton package.  Just as you’re about to hand over your credit card, the cashier asks, “would you like to purchase the extended warranty for the badminton set or our two-year service contract for $19.99?”  What to do?

First, you need to know what extended warranties and service contracts are.

An extended warranty is simply an extension of any existing warranty that comes with the product (and is already included in the purchase price).  For example, let’s say that on the badminton set, a two-year warranty is already included by the manufacturer in the purchase price of, say $99.  The “extended” warranty (which is often sold by a third party) offers product protection for another 2 years beyond the initial warranty, giving you a total of 4 full years of coverage for an additional $19.99.

A service contract, on the other hand, is an agreement under which a purchaser of a product is entitled to some level of service or labor on a product for a limited period of time after the product has been purchased (but this agreement wouldn’t include replacement parts). Retailers and manufacturers will often advertise extended warranties or service contracts to get customers into a store or showroom, or push for additional revenue at the end of a purchase.  The real question is – will the extended warranty or service contract cover any of the fates likely to befall your new badminton set in the next few years?  Will it cover Uncle Sal’s crushing blow to the racquet when he steps on it, or replace the birdie after Fido’s had his way with it, or fix the net after little Johnny has taken his Independence Day sparkler to it?

Sorry to say, but there is only one way to know what the warranty and/or contract will and will not cover – you have to READ it. And not just the parts you can see without your glasses on.  You have to read the whole darn thing – fine print and all.  And, nope, you can’t rely on what the cashier or salesperson tells you about the agreements because, odds are, that person hasn’t read them either and might just be telling you what you want to hear in order to earn a commission on getting you to buy the extended warranty.  If the salesperson is wrong, you’re out of luck.

Now, we don’t want you to think that all service contracts and warranties are traps for the unwary.  Some contracts and warranties can actually save you considerable amounts of money.  Again, the lesson here is to read the agreement before signing on the dotted line.  And while you’re reading, ask yourself the following questions:

  1. What is the length of the contract?
  2. What is covered by the service contract or warranty?  Is coverage relatively comprehensive or limited?
  3. What will the service contract give you that the warranty will not?
  4. Is the product likely to need repairs within the time frame of the warranty or contract?
  5. Are new or used parts authorized for use in repairs?
  6. What other costs (exclusions to coverage, related insurance policies, etc.) will you have?
  7. Where will you be able to get service?
  8. Who is responsible for the contract and are they reputable?
  9. Can you buy the service contract later, after having evaluated the product’s reliability?
  10. What are your responsibilities as the consumer?  For example, are you required to adhere to and document a scheduled maintenance routine?

If you can answer these questions to your satisfaction, you’ll have a much better chance of making the right call when deciding whether to accept or reject that extended warranty or service contract.

You Might Be Interested In