Picture yourself at the cash register at Best Buy, about to plunk down the plastic for a flat-screen television, when the salesperson asks if you want what amounts to an extended warranty.
It's a tough question to answer and one that many of us hear often. You have little time to make a decision. And you may be reluctant to spend another couple of hundred dollars on an already pricey item for insurance you hope you'll never need. But you also worry that if it breaks, it could cost you even more to fix or replace it.
Whether you're purchasing a television or a washing machine, you often have the option of buying an extended warranty, which often are called service or protection plans. It typically covers the product if it breaks or stops working within a certain time frame. However, not all warranties are equal, and experts say that some are a fool's bet.
According to those who study extended warranties, a general rule of thumb is that the policy should cost between 10 percent and 20 percent of the purchase price. Also, the best warranties include accidental damage - as when you spill milk on the keyboard of your laptop and ruin it. Those plans typically cost more. And consumers should ask whether the retailer selling the warranty plans to fix the product in-house, provide you with a new one or ship it away for repairs.
"It's a contract, and like any contract you need to read it and ask what it means," said Eric Arnum, editor of Forest Hills, N.Y.-based Warranty Week. "It is a real pressure situation when you're in line and there's people behind you and you're saying you'd like to read it first and everyone starts to grumble. Believe me, that is not accidental."
Warranties are a big business. Americans spend about $15 billion on extended-service warranties annually, according to Arnum.
The Federal Trade Commission, which points out that extended warranties are really service contracts, said consumers should weigh whether they're needed when compared with the manufacturer's warranty that is built into the price of the product.
Companies such as Best Buy say their service plans are popular among consumers who want protection beyond the manufacturer's standard coverage. And New Customer Service Cos., an extended-warranty provider based in Sterling, Va. that works with retailers, said the plans are good for consumers who want the convenience of dealing with one merchant.
Best Buy Co. executives say many consumers just want to know that they can return the product to the store where they bought it for a repair instead of shipping it away for weeks at a time.
"Ultimately it's up to the customers who want that additional peace of mind and the security and convenience that the product will be covered above and beyond what the manufacturer might cover," said Justin Barber, a Best Buy spokesman.
Consumer Reports advises people in general not to purchase warranties, though it does make exceptions for certain products.
The magazine, which studies various products and services, argues that most consumers aren't likely to get their money's worth beyond what a manufacturer's warranty provides. "For the vast majority of products, the extended warranty doesn't pay," said Tod Marks, a senior editor at the magazine.
Warranty experts say customers should factor in more than price when making a choice.
Arnum, of Warranty Week, says warranties are less important when shopping trusted brands, especially with big-ticket items such as washing machines and televisions.
Established brands such as Whirlpool have a track record in terms of performance and customer service, he said. They are also more likely to take care of repairs and will have spare parts to fix what is broken. Unfamiliar brands may be new to the market and still working out the bugs. Arnum recommends buying an extended warranty in those cases.
Some experts also say warranties for new technology are a good idea. Even Consumer Reports believes consumers should consider the warranties for Apple computers, in part because the company charges $49 "per incident" for telephone support after 90 days. A three-year warranty for the MacBook is $249, according to Apple's Web site.
Arnum of Warranty Week, who recommends warranties for most new technology, points to Microsoft's Xbox 360, which the company said experienced an "unacceptable number of repairs" after the entertainment system was introduced a few years ago. Microsoft voluntarily extended the manufacturer's warranty to three years as a result, and took a charge of more than $1 billion during a single quarter last year to cover it.
Consumers buying service contracts should understand what protection the manufacturer offers and whether anything else is needed, according to the FTC. For example, if the manufacturer's warranty covers the first year, Arnum said, you are paying for a three-year extended warranty that is only good for two years.
Also, some credit card plans cover repairs, so check with your company before buying more coverage.