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The Arizona Republic: “Extended Warranties: Benefits vs. Cost”

You’re at the cash register, ready to pay for a new (television set, cellphone, refrigerator — name the item). Inevitably the salesperson asks whether you’d like the extended-service plan.

Do you or don’t you?

If you are a risk-taker or penny-pincher, you’ll likely say no. If you spent a bundle on a product and can’t afford to replace it, you’ll consider it. If you’ve ever dropped your cellphone and had the screen break, you’ll likely say yes.

“It’s a value decision the consumer has to make,” said Stephen McDaniel, assistant executive director of the Service Contract Industry Council, a national trade association that is working to develop uniform regulation to protect consumers.

Extended warranties and service plans are designed to go beyond the coverage offered by a manufacturer’s warranty.

Whereas the latter generally covers only mechanical and workmanship defects, extended plans typically cover normal wear and tear, heat, dust, humidity and power surges. Most also cover accidental damage. Some even provide “lemon coverage” by replacing an item that has been repaired numerous times.

Extended-service plans are available for a variety of products, including cellphones, desktop and laptop computers, cameras, tablets, e-readers, sporting goods, television sets, outdoor power equipment and appliances.

Plans differ by product and retailer, but they typically cost 10 to 20 percent of the product’s purchase price and are in effect two to five years. Most plans run concurrently with manufacturers’ warranties; others start when the manufacturers’ warranties run out.

Extended-service plans offer consumers peace of mind, said Patrick Bergstrom, an agent with Best Buy’s Geek Squad in Minnesota. They protect the buyer’s investment.

“It’s not so much about what you can think of happening but what you can’t think of,” he said.

With manufacturers’ warranties shrinking in coverage and the amount of time they are valid, service plans can fill in the gaps, McDaniel said.

Extended warranties also can offer convenience.

“Some folks have time to spend getting cost estimates, checking ratings on the Internet and managing the process themselves,” said Kristina Messner, spokeswoman with N.E.W. Customer Service Cos., a provider of extended-service plans to retailers such as Best Buy and Target.

These consumers may not consider it worthwhile to get a plan.“For people who don’t have the time to do all that research or consider it a hassle, an extended-service plan makes sense,” Messner said.

Consumer Reports, however, recommends that consumers don’t spring for most extended-warranty plans. “Extended warranties are one of the most profitable items for retailers,” said Mark Kotkin, the magazine’s director of survey research.

Odds of a product needing a repair in the extended warranty’s time frame are low, he said, and if it does, the repair could cost less than an extended warranty.

N.E.W.’s research indicates that for many products and types of repair, the fix-it cost is more than the plan’s price, Messner said. For example, the company found that the cost to repair the LCD screen on a $400 tablet is at least $200, and the least expensive problem, LCD screen/digitizer failure, on a $120 e-reader costs more than $100 to fix. However, plans cost $40-$80 for the tablet and $10-$30 for the e-reader.

Kotkin does say there is at least one situation where an extended-service plan could be beneficial: if you travel a lot and own numerous portable electronics that could get damaged in your baggage.

The increase in number of smaller, more expensive portable devices is already affecting the industry, McDaniel said. Consumers are asking for plans that cover accidental damage.

Additionally, some consumer electronic plans now come with technical support. “Our major goal is to limit what we call techno stress,” said Bergstrom of Best Buy, which offers plans with Geek Squad support. “It’s like having your own (Geek Squad) agent 24 hours a day.”


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