The sales pitch for an extended warranty is simple: pay some extra money now to extend the manufacture’s 90-day warranty another 3 years to save on expensive repairs later. For most appliances an extended warranty is a rip-off. The cost of this insurance rarely pays for itself. Either the device keeps working till just after the warranty period, or the cost of the warranty extension exceeds the cost of replacing the unit. Either way, the money made by selling uneconomical extended warranties is a major source of profit for retailers. That is why they are selling it: because on average most devices don’t break during this period. Therefore, the wisdom of the smart shopper: skip the extended warranty.
There are a few exceptions to this rule. At this particular moment in technology, there are 3 major devices that seem particularly repair-prone and problematic, with frequent failures within their first 3 years, and with high costs of repair. According to a study by the independent Consumer Reports (August 2011), those three are: personal computers, refrigerators and zero-turn-radius riding lawn mowers. And because of their frequent failure across brands the insurance of an extended warranty is justified in their cases.
But not all extended warranties (EW) are the same. You can purchase an EW from the manufacturer, from the retailer selling the device, from a third party, or from your credit card company. And different issuers have different selling points.
In the personal computer realm, the best deal is Apple’s. As 25-year Apple fans we automatically figure in the cost of AppleCare’s 3-year EW for any device we purchase from them. Sad to say, we frequently need it. Happy to say, their service is great. We take the ailing unit to a local Genius Bar, and they swap out what’s broken and make it right. Over the years we’d had screens, keyboards, drives, motherboards, power supply, all repaired for no extra costs over the EW. And that is not to mention the great real-human phone support help for any kind of software related questions.
Refrigerators are a different matter. Almost everyone has one, and newer models (particular those with ice makers) can be very complex. In the past few months, we needed to purchase our first new refrigerator. Even our plumber told us that the EW was worth getting for a refrigerator. But what kind? Sears offered one plan. Home Depot another. Visa, our credit card company offered another if we used their card. Square Trade offered third-party service. With the help of Camille Cloutier, we researched all the plans to see which had the best deal using a new LG refrigerator as a test case. Her research is summed up in this table here.
The short answer is that like many other industries, when you get behind the curtain there are really only a few major players. Most retailers and card companies outsource their extended warranty programs to a few industry giants, who rebrand their service, and then outsource the actual repairs to local companies. But because there are so many brands involved in this transaction it is very hard to assign credit or blame when things don’t work out. If you read the feedback in forums on refrigerator repairs most unhappy customers aren’t making the distinction between the manufacturer of the appliance, or the retail seller of it, or the company selling the EW, or the actual company supplying the repair technicians who come to your house. Those are four different companies for one experience for the customer.
What I found in warranty repair is that the competency of the local service branch probably plays more of a difference in customer satisfaction than anything else, but was the least consistent. If the local agency did a poor job fixing a problem, customers would naturally blame LG, or Panasonic, or GE for crappy quality and service. It is hard to judge the service quality in an EW, but it is essentially the same as the quality of a regular warranty repair — that is dependent on local crews — and this is important — who often service all the different manufacturers. The Maytag man is unusual because most of the others repair technicians are contracted out and work on all brands.
So the choice of EW providers comes down to price and plan. All the policies we examined include a “No Lemon” clause — if three of the same repairs are made in a 12 month period and a fourth becomes necessary, they will replace the unit, and most of them share the same long list of exclusions. Of all the policies, Visa’s was the shortest and least specific. Its instructions on claim processing seemed the most lengthy (to report a problem, they mail you a claims form, you get an estimate and return that claim form, once it’s approve, the claim can proceed).
Most 4- to 5-year service plans cost about 20% of the purchase price. Except Home Depot; they charge a flat fee of $100 for a 4-year extended contract on refrigerators (on a large one that’s only 4%). It begins when the 1-year manufacturer’s warranty ends, so I went with them for our extended warranty on a new fridge. I now have 5 years of service for $100, which seems like reasonable insurance.