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

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AT&T’s extended warranty costs $8.99 per month, and a cracked-screen repair costs you $89. However, the extended warranty is available only for certain devices and in certain markets. We couldn’t determine which devices or markets were eligible. T-Mobile’s protection plans cost $7–$15 and operate on a tiered system that’s similar to AT&T’s system.

Sprint’s basic extended warranty costs $9 per month, but it has five different tiers of pricing based on the value of the device and whether you have a repair or replacement plan. That means that it can cost you from $50 to $250 to replace a cracked screen, depending on the device that you have.

PLUG IT IN. Appliances provide another situation where an extended warranty might make sense, because the failure rate of certain appliances is high, particularly because the amount of technology that’s in today’s appliances has increased, and appliances typically require an in-home repair.

Mark Huffman of Consumer Affairs says it doesn’t make sense for you to buy an extended warranty on a small appliance that costs less than $100, because it’s less expensive to buy a new appliance than it is to buy an extended warranty. In fact, it’s so expensive to repair small appliances that the list of what isn’t covered under an extended warranty is longer than is the list of what is covered. So you would spend money on an extended warranty that might result in a rejected claim when you could have spent that money to replace the broken appliance.

We found that extended warranties cost an average of about 16 percent of the appliance’s price across the board, but the cost can go much higher. Ideally, the cost of the extended warranty for an appliance should be slightly less than  is the average cost of the typical repair for that appliance, says Randy Goldfein of appliance retailer Abt. Abt follows this standard, as does Yale Appliances. FTC advises consumers to educate themselves on the likelihood of repairs and costs before they decide whether to buy an extended warranty.

Consumers also should compare what they get for their extended-warranty money. For example, one retailer charges $209 for a 3-year extended warranty on a washing machine that costs $849, while one underwriter of extended warranties charges $114. The retailer’s plan is expensive at 25 percent of the original cost of the machine, but it has no deductible for repairs or parts, and if the retailer deems that the washer isn’t repairable, it will pay you up to the price of the original washer, so you can replace it. Parts and repairs that aren’t covered by the extended warranty still get a 25 percent discount, which is an incentive for you to buy the extended warranty. The underwriter’s warranty for the same washer is only 13 percent of the original cost, covers mechanical and electrical failures and requires no deductible for parts or labor. However, it limits the replacement value to $500, and repair costs go toward that limit. In other words, if your washing machine requires a $200 repair and later it breaks down completely, you’ll get only $300 to replace it, not $500.

Goldfein notes that consumers should be aware that manufacturers of some brands of appliances improve their original warranty terms if you follow certain procedures, which might eliminate the need for you to buy an extended warranty.

Goldfein also says it’s important for you to understand that if you buy an extended warranty for, say, a refrigerator, the total repair coverage won’t go beyond the price of the refrigerator. In other words, if you paid $2,000 for a refrigerator and it later required multiple repairs that cost $2,000, you’d have to pay out of pocket for any repairs that would be required later.

Washers, dryers and dishwashers have the highest fail rate among all appliances at 21.5 percent over a 2-year period, which is followed by refrigeration products at 18.4 percent and cooking appliances at 15.7 percent, Goldfein says, based on store data. The average price of a washer or dryer at Abt is $727, and the average extended-warranty price for either is $110. The average cost for a repair is $272, so, in this case, Goldfein would argue that it makes sense for you to buy an extended warranty. “If you buy a refrigerator and the price of the warranty is 15 to 20 percent of that, then you should have peace of mind in [buying] the coverage,” Goldfein contends.

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