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Extended Warranties: When They Actually Make Sense (cont.)

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BUYERS BEWARE. Consumers frequently are persuaded to buy an automobile extended warranty when a salesman tells them that an extended warranty would add only, say, 35 cents per day to their monthly vehicle payment, Fabris says. However, you should know that a 5-year extended-warranty plan at 35 cents per day costs $638 total, not to mention the interest, depending on your loan terms. Fabris says that, in his experience, 85 percent of financed automobiles include an average of $1,500 in extended warranties. Other sources agree with that average.

IN SERVICE. Some extended warranties for appliances include repair costs in the amount of money that you might receive for a replacement.

IN SERVICE. Some extended warranties for appliances include repair costs in the amount of money that you might receive for a replacement.

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Some extended warranties require an automobile owner to have a meticulous maintenance record for their vehicle, so a repair will be covered. This requirement can be difficult, if not impossible, for you to meet if you bought your vehicle used. It’s a loophole that isn’t always mentioned, Butcher says. In other words, a repair claim might be rejected, because the vehicle owner didn’t keep a service receipt for an oil change, for example. Butcher says he has seen car dealers take a trade-in used automobile and put it out on the lot knowing it had a problem and sold an extended-warranty contract to the buyer.

Another common escape clause is one that covers “internally lubricated parts” only as long as all of the seals, gaskets, etc., remain intact, according to New Hampshire Department of Justice (NHDOJ). In other words, if a $4 transmission seal leaked oil and you didn’t fix it before the transmission became damaged, then the extended-warranty company might not pay for your $1,500 transmission repair, NHDOJ says.

PHONE HOME. Experts whom we interviewed tell us that one product for which an extended warranty might make sense is a smartphone.

According to Statista, which is a market-research company, the average selling price of a smartphone in North America is $567. Cellphone service providers have extended warranties that can be added to a phone plan for as little as $5 per month. If you keep your smartphone for 2 years, which is about the average period, according to Kantar Worldpanel, which is a market-research company, then the extended warranty would cost you $120, which is a lot less than is the cost for you to replace your smartphone.

The latest trends in extended warranties for smartphones emerged, because some of the breakage that occurs most frequently isn’t covered by the manufacturer’s warranty, Meenan says. “If you upgrade your service contract to include accidental damage and handling, then you’re covered for when it just goes on the fritz or when you drop it,” Meenan adds.

Cracked phone screens are a common problem that now is addressed by the latest extended warranties. Unfortunately, not all extended warranties cover such repairs in the same way, and nuances abound.

According to Motorola, one-third of U.S. smartphone owners crack their smartphone’s screen. A screen on a smartphone that uses the Google Android operating system, for example, can cost $100–$200 to repair.

Most cellphone-service providers and smartphone manufacturers provide an extended warranty that covers screen repair.

Apple charges $129 for its 2-year AppleCare extended warranty, but owners still have to pay $29 to fix a cracked screen—compared with $129–$149 without the extended warranty. (Apple iPhone models that are older than the iPhone 6 cost $79 for you to replace a screen under the extended warranty.) Apple limits owners to two screen-related claims per year. After that, the smartphone owner pays the full price to replace the screen. This extended warranty turns into a good deal only if you crack your screen more than once. The cost of the extended warranty and one replacement—$158—is more than the cost of replacement would be if you don’t have an extended warranty—$129–$149. We also found third-party smartphone repair shops that charge $59–$115 to repair a cracked screen on an iPhone, so AppleCare is pointless if you buy it just to cover screen repairs. Our research found that Google and Samsung offer similar plans.

Verizon Wireless addresses cracked screens through a two-tiered (read: higher priced) extended-warranty program. A basic extended warranty at Verizon costs $5–$7.15 per month, but it doesn’t cover cracked screens. For $11 per month, or $132 per year, Verizon’s Total Protection extended warranty covers cracked screens and provides same-day repair if you’re located in an area that provides the repair service.

As with AppleCare, you still have to pay for a screen repair, however—$49, which was lowered from $99. You can make three cracked-screen claims per year, after which cracked-screen repairs cost you 100 percent out of pocket—$129. Verizon makes its cracked-screen extended warranty available in 65 percent of its markets, with more in the works, and it has remote technicians in 115 cities who will “come to you” to provide the service, Verizon spokesperson Todd Oberstein says.

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