Extended warranty
From Free net encyclopedia
An extended warranty, sometimes called a service agreement or a maintenance agreement, is a prolonged warranty offered to consumers. The extended warranty may be offered by the warranty administrator, the retailer or the manufacturer. These warranties extend the period of the manufacturer's standard warranty and are not "double coverage". For example, a refrigerator's extended warranty covers two years past the manufacturer's one year warranty. Extended warranties cost extra and for a percentage of the item's retail price. In retail consumer electronics, extended warranties cost 20% to 30% of the price, and give sales associates up to 15% commission[1].
An extended warranty is pitched like an "insurance policy" in case the product breaks down after the manufacturer’s standard warranty period. It promises more protection. However, in most cases, extended warranties are not worth the money.
Extended warranties are something of a cash cow for those who offer them. Few items with extended warranties ever need replacing or repairing and, if they ever do, many consumers forget they purchased the warranty, pass the product to another person without explaining it to them, or do not know how to invoke it: often the customer ends up buying a new replacement product. In addition, the insurer of an extended warranty may claim the product was abused or used in a manner inconsistent with "normal wear". At point of purchase, many consumers pay little attention to the "fine print" of the warranty. Where retailers do honor their extended warranty, the volume of unused or unclaimed extended warranties amply cover the claims.
Consumer advocate groups, such as the non-profit Consumers Union, advise against purchasing extended warranties. David Butler of the Consumers Union says, "The extended warranty is definitely in the best interest of the company, but isn't often in the best interest of the consumer." He adds, "The company is much more likely to profit from the extended warranty than the consumer is." In many cases, if the item does need repairing, the cost of repairs are less than the cost of the extended warranty.
Consumers Union says only two products deserve extended warranty consideration: projection TV's and digital camcorders. Both are expensive to repair and need repairs frequently.
Extended warranties in the UK
The extended warranty market has been subject to several investigations. In 2002 the Office of Fair Trading decided that self-regulation of the industry had failed and passed the case onto the Competition Commission. This concluded that the market was not acting in the interests of consumers.