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Do You Really Need That Extended Warranty?
Most shoppers have been there: standing at the till, ready to pay for a new computer, TV, washing machine, microwave oven or the like when the salesman asks if you want to buy the extended warranty insurance on the item. He's waiting, ready to hit the button that will add to the purchase price, for your yes or no answer.
Be warned: you often say no at your own peril. For whatever reason, they don't like it when you say no. A common practice is to have "Customer declined warranty" written across your receipt.
Understand one thing: you haven't declined the warranty, you declined to purchase often unnecessary extended warranty insurance. You are still covered by the manufacturer's warranty, and possibly the Federal Trade Practices Act, which provides all consumers with a statutory warranty whenever they buy any kind of goods or services, if things go wrong. Most appliances, even $11 kettles, let alone $5,000 Smart TVs, are covered by a manufacturer's warranty of at least 12 months from the date of purchase, if not longer.
Research carried out by Choice found that 66% of shoppers who were offered an extended warranty bought one, with 36% buying for products worth less than $700, but that only 25% ever made a claim on the warranty. That means that 75% of extended warranty sales are pure profit. With the cost of these warranties running at between 6% - 24% of the retail cost of the item, the profit margin is huge.
There are three types of warranties:
1. Manufacturer’s warranty
This is also known as a voluntary or express warranty and is the sort most consumers are familiar with. It’s usually provided as a booklet that comes with the product, but may only be available in certain circumstances, and is often for a limited time. You may be asked to complete and return paperwork, including proof of date of purchase. Staple the receipt and warranty card to the inside cover of the user's manual so you don't lose them. Then either scan them and save them to a digital file, or take a photo of them (mobile phones have brilliant cameras, perfect for this).
2 . Statutory warranty
Your rights under this type of warranty are implied; that is, you don’t receive paperwork stating what’s covered and what’s not.
Many consumers are not aware they have basic consumers rights without having to pay for them. Basic consumer rights under statutory warranty, which is free, entitles you to ask for a refund, exchange or repair if the item you bought is either not of ‘merchantable quality’, not the same as the item described in advertising or by the salesperson or not fit for the purpose you made known to the trader and you’ve relied on the trader’s judgement.
3. Extended warranty
This is an additional warranty retailers try to sell you which may or may not extend the manufacturer’s warranty. Some extended warranties may only replace the product or refund customers based on annual depreciation of the product or cover repairs up to the original purchase price. This means the product you get as a replacement may be inferior to the one you originally bought or you may be refunded less money than what you paid.
If you're determined to buy an extended warranty because the item you're buying is the single most expensive thing you've purchased this year and you're convinced if you don't get it then Murphy will visit and it will break down as soon as the manufacturer's warranty expires, make sure you know what the warranty covers. Ask questions, lots of questions.
Shop smart and skip the extended warranty unless you have read and completely understand the terms and conditions and have a reasonable belief that the appliance won't last for its expected lifetime.
Be warned: you often say no at your own peril. For whatever reason, they don't like it when you say no. A common practice is to have "Customer declined warranty" written across your receipt.
Understand one thing: you haven't declined the warranty, you declined to purchase often unnecessary extended warranty insurance. You are still covered by the manufacturer's warranty, and possibly the Federal Trade Practices Act, which provides all consumers with a statutory warranty whenever they buy any kind of goods or services, if things go wrong. Most appliances, even $11 kettles, let alone $5,000 Smart TVs, are covered by a manufacturer's warranty of at least 12 months from the date of purchase, if not longer.
Research carried out by Choice found that 66% of shoppers who were offered an extended warranty bought one, with 36% buying for products worth less than $700, but that only 25% ever made a claim on the warranty. That means that 75% of extended warranty sales are pure profit. With the cost of these warranties running at between 6% - 24% of the retail cost of the item, the profit margin is huge.
There are three types of warranties:
1. Manufacturer’s warranty
This is also known as a voluntary or express warranty and is the sort most consumers are familiar with. It’s usually provided as a booklet that comes with the product, but may only be available in certain circumstances, and is often for a limited time. You may be asked to complete and return paperwork, including proof of date of purchase. Staple the receipt and warranty card to the inside cover of the user's manual so you don't lose them. Then either scan them and save them to a digital file, or take a photo of them (mobile phones have brilliant cameras, perfect for this).
2 . Statutory warranty
Your rights under this type of warranty are implied; that is, you don’t receive paperwork stating what’s covered and what’s not.
Many consumers are not aware they have basic consumers rights without having to pay for them. Basic consumer rights under statutory warranty, which is free, entitles you to ask for a refund, exchange or repair if the item you bought is either not of ‘merchantable quality’, not the same as the item described in advertising or by the salesperson or not fit for the purpose you made known to the trader and you’ve relied on the trader’s judgement.
3. Extended warranty
This is an additional warranty retailers try to sell you which may or may not extend the manufacturer’s warranty. Some extended warranties may only replace the product or refund customers based on annual depreciation of the product or cover repairs up to the original purchase price. This means the product you get as a replacement may be inferior to the one you originally bought or you may be refunded less money than what you paid.
If you're determined to buy an extended warranty because the item you're buying is the single most expensive thing you've purchased this year and you're convinced if you don't get it then Murphy will visit and it will break down as soon as the manufacturer's warranty expires, make sure you know what the warranty covers. Ask questions, lots of questions.
- What is the real life expectancy of the item? For instance, I would expect a $3,000 TV to work properly for more than five years, but an $80 microwave may not have the same life expectancy.
- Is it really worth paying for an extended warranty on this item? If the item is under $700, then in reality the cost of the extended warranty may be wasted money.
- Are parts covered? How about the labour involved in fixing the item?
- Who will do the repairs? Will you pay the cost for shipping back and forth to have the repairs done?
- Who pays for the repairs? The last thing you want is a policy where you pay up front and then have to submit a claim for reimbursement. Is there a deductible?
- How does the cost compare with the item you're buying? If the cost of the warranty represents more than 10 to 15 percent of the price you paid for the item, it's way too expensive.
- Will the warranty provider be around to provide the service if you need it? Well-known retailers and manufacturers are probably safe. But I'd take a pass on third-party service providers.
- Don't just take the salesperson's word for what your policy covers. If you don't have the time to look for the answers to the questions above before you put down your money, don't buy the insurance since you could be buying a pig in a poke. Many are the stories from people who try to claim on their warranty only to find out that what they're claiming for isn't covered because of fine print in the warranty that they didn't read.
Shop smart and skip the extended warranty unless you have read and completely understand the terms and conditions and have a reasonable belief that the appliance won't last for its expected lifetime.