5 Times Buying the Extended Warranty Makes Sense

By Mikey Rox on 23 January 2017 0 comments

Every time you make a big-ish purchase — like a TV, home appliance, or automobile — you're offered the extended warranty. The extended warranty covers repair beyond the manufacturer's warranty expiration date, usually by a couple years, but it requires an additional fee. Most of us turn down this option on TVs and appliances as these items rarely break down before we're ready to upgrade. But it's wise to consider opting for the extended warranty in certain situations. Take a look at these five times buying the extended warranty actually makes sense.

1. Lawn and Garden Equipment

If you've ever owned lawn equipment — like a mower or a weed whacker (especially a weed whacker!) — you know how sensitive these machines can be. After all, they're sucking up dirt, grass, leaves, and all kinds of debris, which not only dulls the parts faster than other machinery, but the debris can become lodged in places it shouldn't be, thus causing the need for repair. Another reason these machines are prone to breaking down after a year or two of use is because they burn combustive fuel — the process of which degrades the parts over time.

Bryan Clayton, CEO of an on-demand lawn service called GreenPal, explains why an extended warranty for these types of products makes economic sense.

"When you take a $400 push mower to your local repair shop, the cost to repair it can exceed the cost of buying a new unit. The extended warranty for a new push mower usually runs about 10% to 15% of the cost of the unit, and if you plan on keeping it three to five years, it almost always pays off," he says. "For instance, the self-propelled drive mechanism of most Honda push mowers will go out after a year and a half to two years of use, and to repair or replace the drive will cost in excess of $300 with parts and labor; an extended warranty will cover you when this occurs."

As is the case with any extended warranty, be sure to keep all paperwork and receipts that pertain to the machinery. You'll get the work done faster without any pushback since you can readily prove it.

2. Cars

Two years ago, I purchased a used 2009 Volkswagen with about 75,000 miles on it. For the first year, everything was fine. This year, however, it seems like anything that could go wrong with this vehicle has gone wrong. Since August, I've had to replace all four tires, the mechanism that opens the driver's side door, the power-steering rack, and the serpentine belt. The car is in the shop every other week for something new it seems, and the repairs have cost me thousands of dollars.

Of course, I opted out of the extended warranty when it was offered, because I'm an idiot and I didn't want to spend the extra money. But in hindsight, I should have loosened my wallet. It would have saved me a lot of stress and unexpected expense.

Auto sales and leasing consultant Matt Tuers says, "Extended warranties from car dealers are big profit centers, but in many cases these products can save consumers a lot of money. This is especially true as modern vehicles comprise more and more intricate and expensive components and electronics. If you are planning to keep your newly purchased vehicle for longer than is covered by the factory warranty — in terms of years or mileage — these extended warranties can pay for themselves."

A typical manufacturer's warranty on a new vehicle covers the first three to four years, so if you plan to unload the car in less than four years, skip the extended option. If you plan to keep it until it decides it doesn't want to take you anywhere anymore, however, splurge for the additional coverage.

Purchasing an extended warranty for my vehicle would have only cost a few hundred dollars more, and I'm definitely kicking myself now.

3. Your "New" Used Home

If you're moving into a house with existing appliances, a home warranty may be a good idea to cover what's already there, like refrigerators and water heaters. You don't know what kind of wear and tear the appliances went through before you arrived, and you may not know how old they are or receive any of the previous owner's warranty information. Everything should be up to par at inspection, but you'll feel like a sucker if something goes on the fritz right after you move in. Besides, you have plenty of other expenses when buying a new home. The last thing you need is to replace an appliance you thought was in good working condition.

4. Home Improvement Projects

Last year I had my home re-sided, and the company that completed the work offered a warranty that covered the length of time I plan to stay in this house, so I opted out of any extended coverage. If you're planning any home improvements projects — like replacing your windows — anytime soon, however, and you plan to stick around for awhile, you should absolutely inquire about extended or lifetime warranties. These warranties are often built into the cost of the products, which may make them a bit more expensive than their competitors, so do your due diligence when comparing brands and what's offered.

5. Computers and Laptops

For the most part, computers and laptops hold their own. They're reliable devices, but there's a chance you could get one that's just a little off or crashes before you expected it. Case in point: The hard drive of my Mac crashed a few years ago, costing me about $300 in repairs — and they couldn't recover my lost data! I couldn't afford to purchase a new laptop at that time, so I had to submit to the repairs. But if I had purchased an extended warranty, I could have rested a little easier knowing that I didn't have to pay out of pocket for what seemed to me like a manufacturing defect. If you plan to purchase the extended warranty on a computer, plan to spend about 10% to 20% of the price of the device. Anything higher than that and you're paying too much.

A Note About Extended Warranties on Credit Cards

Most credit cards offer free extended warranties on your purchases. Look at your card agreement or call up your issuer. Find the credit card that offers the best policy on extended warranties (some cards have a lower per-claim maximum dollar amount, or lower threshold for extending the warranty) and use that for your next big ticket item.

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The manufacturer offering the extended warranty pays accountants expressly to figure out how much to charge for the warranty so that the manufacturer makes money on it. If the manufacturer makes money (meaning that he takes in more selling warranties than he pays out for claims), then on average the customer is losing money. Are you saying that manufacturers lose money on warranties?