Extended Warranties and Service Contracts

Evaluate Extended Warranty Coverage

When you’re deciding if an extended warranty or service contract is worth the added cost, consider the initial cost of the product and the likely cost of repairs. An extended warranty or service contract might not be worth the money if a product isn’t likely to need repairs, or if repairs won’t be expensive. Check product review websites to see if other people say the product you bought often needs expensive repairs. Read the details of the extended warranty or service contract. Does it offer more coverage than the warranty that came with the product? If it doesn’t, it’s not a good value.

As you think about whether to buy extended warranty coverage, consider

• Costs. Look at the initial cost of the extended warranty or service contract, and costs that might be hidden, like deductibles or fees you must pay each time the product is serviced. Do you have to pay to ship the product to a repair center? Is there a fee to transfer the extended warranty or service contract to someone else? Does the extended warranty or service contract set limits on reimbursement amounts? For example, auto service contracts may not fully cover expenses for towing or renting a car.

• How long it lasts. Knowing how long the coverage lasts will help you calculate the yearly or monthly cost of the contract.

• What’s covered. An extended warranty or service contract won’t cover all situations or repairs. To find out if one is a good value, find out what limitations apply. Does it cover accidental damage? Can the company deny coverage if, for example, you don’t follow their instructions for routine maintenance? Does it cover only specific parts of the product or specific repairs? If it isn’t listed in the contract, assume that it’s not covered.

• Claims. Going through a difficult claims process or waiting for reimbursement can reduce the value of having coverage. Find out who takes care of repairs. How do you make a claim? Do you need to return the item to the store where you bought it? If a local seller or dealer offers the contract, you might have to go to them for service, even if you’ve moved away.

• Reputation. The value of an extended warranty or service contract is only as good as the company that’s responsible for coverage. Before you sign a contract, check out the company's reputation and consider how long it’s been in business. Do an online search with the name of the company and words like “review” or “complaint” to see if there are negative reviews of the company. Check with your state consumer protection office to see they have any complaints against the company.

A Different Way To Pay for Repairs

Extended warranties and service contracts are not the only way to plan for future repairs or accidents. After you evaluate the extended warranty or service contract coverage, you might find that putting money aside in a savings account is a better option. Then, if you need to pay for repairs, you can use the money in the account.

Unwanted Calls and Mail About Extended Warranties and Service Contracts 

When you buy a product, the seller might offer you an extended warranty or service contract. But you might also get calls and mail from marketers who want to sell you an extended warranty or service contract. These offers can come years after your purchase, and that marketer is usually not related to the company you did business with. The telemarketing calls — both live calls and robocalls — are probably illegal if you have no connection with the company.

If you respond, you’re likely to hear high-pressure sales tactics (“act now, your warranty is about to expire”). The marketer might try to get your personal and financial information, and maybe even a first payment, before they tell you about the contract. Think twice about buying an extended warranty or service contract from a telemarketer, because you may find that the company behind the contract isn’t in business when you need its services.

Report Problems

If you have a problem with an extended warranty or service contract, report it to

• The Federal Trade Commission at ReportFraud.ftc.gov.
• Your state attorney general.