Extended warranties, or service plans, offer consumers
longer terms of coverage on service, repair and replacement for their home's
appliances than the standard out-of-the-box warranty from the manufacturer.
These warranties are highly profitable for retailers, as
they deliver 50% profit, but they also run up the total cost of your washer,
dryer, or or refrigerator by as much as $118, according to Consumer Reports.
Are service plans actually worth it? You can argue the
benefits both ways.
In the fast-paced world of home electronics, future
technology will far outclass today's products by the time the extended warranty
expires. Digitaltrends.com states that household electronics have seen great
improvements in product reliability, making the price of most extended
warranties about the same as a repair bill. The same is true with most
appliances today too.
Consumer Reports data concludes that products "usually
don't break during the two-to-three-year period after the manufacturer's
warranty expires and the service plan is in effect." And if they do break,
the repairs, on average cost only $16 more than the service plan. Most defects
will reveal themselves within the first year of use, while the manufacturer's
warranty is still good.
If you're tempted to buy a service plan, follow this rule --
the cost of the warranty should be no more than 10% of the purchase price. That
said, extended warranties should be purchased for some items, including those
that are difficult to repair or high-priced items that would be painful to
replace.
Or you could buy a home warranty for about $500. Explains
Amy Hoak, correspondent for MarketWatch, "A home warranty is a service
contract that commonly covers the repair or replacement of your home's
appliances and systems, including your heating and air conditioning
systems."
No matter which appliance breaks, you make one call and the
service plan call center dispatches the appropriate repairperson. The problem
is that service providers pay for these leads, which means they make less
money, so be prepared to be upsold to a "cleaning" or more expensive
repairs.
In addition to the annual fee, you'll also pay a $60-$75
service fee when a contractor is dispatched to your home.
Home Warranties are ideal for rental properties and as
incentives for homebuyers, and they come in handy when multiple appliances
break down, saving an average repair bill of $840 or a replacement at an
average of $1,200, says Hoak.
Ultimately the choice and risk are yours to assume. Extended
warranties or home warranties can be worth the cost in terms of peace of mind,
but only if it's for a product you don't intend to change for a few years.
And if you decide to skip the warranty, be prepared to
shoulder the cost for assessment (service calls), repair (time in labor plus
parts) and shipping.
Consumerreports.org says you shouldn't have to pay extra to
get manufacturers or retailers to stand behind their products, but sometimes,
you have to. If you have older products and systems, a home warranty may be
your best bet.
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