By: Joanne Cavis, UGA Cooperative Extension
Have you purchased any kind of electronic devices such as home appliances, visual equipment or computers lately? If so, you probably heard a sales pitch for an extended warranty. More often than not, you should probably just say no th these expensive add-ons.
Profit margins are as high as 70% for extended warranties compared with about 10% for the products they cover. In a down economy, the profit margin on the product is even less. Retailers market extended warranties aggressively because they are so profitable.
Sales people often profit from extended warranties, too. As an incentive to sell more of these big profit makers, many retailers offer commissions for extended warranty sales to the employees. The commission on extended warranties will typically be worth significantly more than the commission earned from sale of the product.
Depending on the product, three years coverage will cost between $60 and $300. Salespersons often use high pressure tactics to encourage you to buy the extra coverage. According to Consumer Reports, an extended warranty is rarely worth the cost.
Why not? Most appliance, audio-visual equipment and computers are very dependable. In their annual survey of Consumer Report subscribers, fewer than ten percent of camcorders, electric ranges, dishwashers, and top-freezer refrigerators required any repairs in the first three years. Even among items more likely to need repairs in the first three years, such as projection televisions, the average repair cost the same as the extended warranty.
As with any rule, there are exceptions. Consumer Report suggests that an extended warranty may be worth the money for treadmills that have a standard warranty of less than two years on parts and one year on labor. It might also be worthwhile to buy an additional year or two extension on the standard one-year warranty for laptop computers.
This year, when the salesperson tries to scare you into buying that extended warranty, more often than not, you should just say no. Think about putting the money you world have paid for the extended warranty into a savings account. Use the money you save to cover the cost of any repairs not covered by the factory warranty
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