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

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Rob Drury, who is a financial advisor who advises clients on insurance needs and coverage, isn’t so convinced. “One shouldn’t buy the warranty unless one cannot reasonably afford a repair or replacement,” he says.

HAPPY ENDING. After the excitement of buying a new item—and the extended warranty—fades, you should take the time to review what the warranty covers as well as its terms and conditions for when you file a claim, Meenan says. “You can look at the terms and conditions. If there’s something you don’t like, you pick up the phone, call a 1-800 number and get 100 percent refunded for those first 30 or 45 days. No questions asked,” he says. If the plan isn’t what you thought it was, you have some protection. Every policy that we reviewed—two for automobiles, four for smartphones and two for appliances—includes a cancellation clause.

As of press time, 18 states had some form of cancellation policy. If you live in one of those states and you see in your extended warranty that repairs can’t be performed by the repair shop that you choose or that your extended warranty doesn’t include, say, the replacement of the product even though you wanted that coverage, you can cancel the warranty within 30 days after you bought it.

Consumers also should be aware that most states require licenses and regulate extended-warranty companies, so it makes sense to verify their credibility. Meenan says that if you buy an extended warranty, you should visit National Association of Insurance Commissioners website (eapps.naic.org/cis/). “Find the list of licensed extended-warranty companies in your state, and make sure [the company you’re about to buy from] is on the list, or make a call,” he says. If you never heard of the company, then you should cancel the extended warranty.

Ultimately, extended warranties are sold with the intention to make the insurance company money, not to protect the consumer.

Debra Borchardt covers business topics for Forbes and Seeking Alpha.

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