GearGuide 08 of 10
Extended Warranties: 10 Questions to Ask Before You Pay
The checkout screen is the worst place to decide on a protection plan. These ten questions make it quick to tell a useful plan from an expensive one.
Extended warranties are technically service contracts: optional coverage you pay extra for, often administered by a third-party company rather than by the store that sells it. They’re also very profitable for retailers, which is why they’re pitched so hard at checkout.
Some plans are worth it. Many aren’t. These ten questions take a couple of minutes, and they usually make the answer obvious.
1. What does the manufacturer’s warranty already cover?
Most new electronics and appliances come with a manufacturer’s warranty, often for one year and sometimes longer for specific parts. An extended plan that starts on day one overlaps that coverage, so part of what you’d pay for is protection you already have. Check the length and terms of the included warranty first.
It’s also worth knowing that under federal warranty law, a manufacturer generally can’t void your warranty just because you used an independent repair shop or third-party parts, unless it provides those parts or that service for free. The FTC has warned companies that “warranty void if removed” stickers and similar claims can break that law.
2. Does your credit card already extend it?
Some credit cards automatically add extra warranty time to eligible purchases made with the card, often extending a manufacturer’s warranty by up to one more year. Not every card does this, and some issuers have dropped the benefit, so check your card’s benefits guide before you pay for a plan.
To use it, you’ll usually need the receipt, the original warranty and a claim filed with the card’s benefits administrator.
3. Who actually backs the plan?
The name on the box isn’t always the company that pays claims. Many retailer-branded plans are run by third-party administrators or backed by insurers. Find the obligor, the company responsible for honoring the contract, in the terms.
Is it a company you can find information and complaints about? What happens to your coverage if the retailer goes out of business?
4. What’s covered, and what’s excluded?
Read the exclusions before the coverage. Common ones include accidental damage such as drops, spills and cracked screens, unless the plan specifically includes it; cosmetic damage; batteries and other consumable parts; normal wear and tear; problems that existed before the plan started; and damage from power surges, pets or misuse.
A plan that covers only mechanical and electrical failure is far less useful for a phone than for a washing machine.
5. What does a claim cost?
Many plans charge a deductible or a service fee for each claim, and some limit the number of claims or the total payout, often to the original purchase price. A plan with a $99 deductible for screen repairs works out very differently from one with no deductible.
Do the math for the claim you’re most likely to make.
6. Repair, replace or refund, and who decides?
If the product can’t be fixed, what do you get: a new unit, a refurbished one, a store gift card or cash? Usually the plan provider decides. Some plans promise a replacement after a set number of repairs for the same problem, sometimes called a “no lemon” policy; others don’t.
A gift card for the original price may also buy a lot less three years later.
7. How does service actually work?
Ask how repairs happen: in-home service, carry-in to a store or mail-in to a repair center. Who pays for shipping? How long might you be without the product?
For a refrigerator or a washer, in-home service is essential. For a laptop you need for work, two or three weeks at a repair center is a real cost.
8. Can you cancel it, or transfer it?
Many plans can be canceled for a prorated refund, but terms vary, and some charge a cancellation fee. Check the cancellation clause before you buy.
Also check whether the plan transfers to a new owner if you sell or give away the product. Transferable coverage can add a little resale value.
9. Is the price worth the risk?
Compare the plan’s price with what it protects. A $90 plan on a $300 item costs 30% of the product’s price, to insure against something that may never happen.
Plans make the most sense for expensive things that are likely to get damaged and costly to repair, such as a phone or laptop you carry every day, especially with accidental-damage coverage. They make the least sense for cheap, reliable items you could simply replace. If you could pay for a repair out of savings, you’re effectively insuring yourself, and over many purchases that’s usually cheaper.
10. Do you have to decide right now?
Usually not. Many plans can be bought within a window after purchase. AppleCare+, for example, can generally be added within 60 days of buying an Apple device, and many third-party plans can be bought weeks or months afterward.
Take the receipt home, read the terms and decide when nobody is waiting for an answer.
A worked example
Say you’re buying a $1,200 laptop. The store offers a three-year plan for $250 that covers accidental damage, with a $99 deductible per claim. The manufacturer already covers defects for the first year, and your credit card adds a second year.
What the plan really adds, then, is accidental-damage coverage for three years, plus defect coverage in the third year. If you never drop the laptop and it doesn’t fail in year three, you’ve spent $250 for nothing. If you crack the screen once, you’ve spent $349 on that repair. Whether that’s a good deal depends on what the repair would cost without the plan, which many manufacturers publish on their repair-pricing pages, and on how likely you are to need it. Someone who carries a laptop on a daily commute has a different answer from someone whose laptop never leaves the desk.
When a plan is more likely to make sense
- The product is expensive, portable and used every day.
- The plan includes accidental damage, and your household is hard on devices.
- Repairs for that product are known to be expensive, or parts are hard to find.
- A large repair bill would be a real problem for your budget.
- For large appliances, the plan includes in-home service without extra trip charges.
Skip it for inexpensive items, products you’d replace within a couple of years anyway, and anything your credit card already covers.
The bottom line
A protection plan is insurance, and insurance is worth buying for losses you can’t comfortably absorb. For everything else, the warranty you already have, the card in your wallet and a little savings usually do the job.
Your 10-point checklist
- Check the manufacturer warranty’s length and coverage.
- Check your credit card’s warranty benefits.
- Find the obligor named in the terms.
- Read the exclusions first.
- Note deductibles, claim limits and payout caps.
- Find out whether you’d get a repair, a replacement or a gift card.
- Ask how service works and who pays for shipping.
- Check the cancellation and transfer terms.
- Compare the plan’s price with the product and a likely repair.
- Ask how long you have to buy it, then decide at home.
Take a screenshot, or print the page: the checklist prints without the menus.