4 Warranties That Aren't Worth It

By Damian Davila on 1 April 2015 0 comments

Most of us believe that it's better to be safe than sorry.

However, when it comes to buying warranties, you may be acting on emotion. It's time to step back and take a closer look at those extended warranties — your extra peace of mind may be coming with a hidden high cost. Here are four warranties that aren't worth it.

1. Warranties That Are Too Expensive

According to the Service Contract Industry Council, most extended warranty costs are 10% to 20% of the sales price. Anything above that 20% benchmark may be too much, particularly for small ticket items. For example, a $20 extended warranty on a $55 panini press is a waste of money.

On the other hand, buying a $150 warranty on a $2,000 computer is a more sensible purchase. Not only is that warranty just 7.5% of the total price, but it'd also cover the high cost of replacing parts.

2. Warranties Shorter Than Those From Your Credit Card

There is no need to pay twice for coverage that you may already have. As long as you complete the entire purchase on a single credit card, most major credit card companies will extend the original manufacturer's warranty up to one additional year.

Review the fine print on your credit card's extended warranty for other applicable limits, such as the maximum purchase price and maximum dollar value of claims within the same year. As long as you're aware of applicable exclusions and requirements, having a credit card with an excellent extended warranty can be a lifesaver. (See also: How to Take Advantage of the Free Extended Warranty From Your Credit Card Issuer)

3. Warranties for Products With Low Repair Rates

Some people claim that things aren't built to last anymore. However, surveys from Consumer Reports seem to indicate that it may all just be in our heads. The repair rates for several items are going down.

  • Laptops had a repair rate of 36% in 2010, and 24% in 2013.
  • LCD TVs had a repair rate of 15% in 2010, and 7% in 2013.
  • Dishwashers already had a low repair rate of 13% back in 2004.

Consumer Reports found that appliances usually don't break during the extended warranty period. Even when breakdowns occur, the median cost of a repair ($152) isn't that much more than the median price of a warranty ($136).

A great alternative to extended warranties for products with low repair rates is to put the money you would have spent on the warranty in a savings account, instead. By "self-insuring," you're keeping the money and gaining interest on your rainy day fund.

4. Unsolicited Car Warranties

There are warranties that aren't worth the money, and then there are warranty scams.

For several decades, the FCC has been warning consumers about auto warranty scams. Malicious companies prey on consumers whose auto warranties are about to expire — or in some cases, they may not even be close to expiration. Back in 2008, the Better Business Bureau received more than 140,000 consumer calls to confirm the legitimacy of companies claiming to sell auto warranties.

For example, in the year that the basic warranty of my 2012 Volkswagen Passat was set to expire, I started receiving unsolicited mail with warnings in big, bold letters; "Final Notice: Expiring Auto Warranty." After ignoring a couple of these mailers, additional ones started pouring in with labels such as "2nd Attempt," "Time Sensitive," or "Vehicle Alert Notice." Then, the calls started coming in every single week. It was all from unscrupulous car warranty salespeople.

Don't cave in to the pressure and protect yourself against potential car warranty fraud:

  • Don't provide any personal or financial information over the phone to unsolicited telemarketers.
     
  • Resist high-pressure pitches from salespeople or mailers that urge you to act now. Those "final deadlines" extend for several months over and over.
     
  • These car warranties rarely pay claims. The BBB reports that 93% of vehicle service claims are denied under these warranties.
     
  • Never agree to any contract without having a physical copy of the contract and an appropriate timeframe to review the fine print.
     
  • A major red flag is the requirement of a down payment to view a contract. Don't agree to pay over the phone.
     
  • Search online for the name of the company offering the auto warranty (such as U.S. Fidelis), since some of those companies are often in trouble with the law. Or, check the company with your state and local consumer agencies.
     
  • File a complaint with the FCC by visiting consumercomplaints.fcc.gov, calling 1-888-CALL-FCC (1-888-225-5322), or writing to Federal Communications Commission, Consumer and Governmental Affairs Bureau, Consumer Inquiries and Complaints Division, 445 12th Street, SW, Washington, DC 20554.
     
  • Place your phone number on the National Do Not Call Registry.

What are some warranties that you wished you never paid for?

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Guest's picture
BostonHolly

What about the "sensitive" high end washer and dryer I just purchased for $1800 which came with 2,3 year warranties which i've had a mere 3 months and they (manufacturer) are already hassling me to buy the extended warranties ? It's been drilled into my head to never ever ever buy extended warranties but what about warranties for these fancy schmancy machines ? I don't really have *more* money to give the store to give to Electrolux after such a large investment which I paid in full. However, I do regret not buying the extended warranty for the 2001 [first year model] Ford Escape (no I don't) as the thing has been an expensive, frustrating headache since I drove it off the lot because I've basically paid 50% more than the asking price in repairs.