Extended Warranty: Waste of Money or Peace of Mind?

Click Here!

While millions of consumers purchase extended warranties for peace of mind, some experts advise shoppers to think twice before buying them.

Extended warranties were introduced in the late 1980's and have been marketed to consumers ever since. While manufacturer's warranties for many products typically cover the first year, extended warranties usually cover two or three years.

"Through our analysis of hundreds of thousands of responses to our Annual Questionnaire, we have determined that a repair during that limited time frame is unlikely," said Mark Kotkin, Director of Survey Research at the Consumer Reports National Research Center.

Kotkin also said the cost of the repair is generally not much more than the cost of the warranty and expensive repairs for recent purchases are "exceedingly rare."

Still, consumers look at these service contracts as insurance policies.

Richardson resident Betty Pratt said she has bought an extended warranty for every appliance in her home, from the refrigerator to the dishwasher.

She said she'd never thought twice about the protection these service contracts offer until she called to get her stainless-steel GE Profile dishwasher serviced.

"It isn't heating as well as I would like it. Even with the extended heating on there, it isn't as hot as it should be," said Pratt.

She said she bought the appliance three years ago for more than $1,500 from The Great Indoors, a Sears-owned store that, until 2012, had a location in North Dallas that is now closed. She said she picked that model because to her it seems easy to use.

"It's very simple. It washes china and crystal, pots and pans, a normal cycle, extra heat, delayed time and that's it," Pratt said.

At the same time she spent an extra $299.99 for a five-year extended warranty offered by Sears, buying into the sales person's pitch.

"It was the manufacturer warranty isn't very extensive," Pratt said the salesman told her. "We offer a warranty that will add to that; cover you for three to five years. It will cover everything."

But when she called Sears to make good on the contract and service the dishwasher, she was told by a customer service representative her appliance was "too high end" and Sears' technicians were not trained to service it.

After spending hours on the phone and writing emails, the Sears Corporate Office left her the following two options: Find her own technician, provided that Sears may or may not pay for, or accept a refund for a prorated portion of what's left on her warranty. She said these options are not what she bought into when she purchased the warranty.

That's when Pratt called NBC 5 Investigates Consumer Unit. We contacted Sears.

"Sears services most brands, but there are products on which we sell warranties that Sears employees do not service. However, in those cases we contract with providers who are trained, and who go through a rigorous authorization process," explained Larry Costello, Sears Holdings Public Relations Director, via email.

"Regarding customer Pratt's situation with her GE Profile dishwasher, we're confident this was a very isolated incident, caused in part by a technical glitch in our routing software and in part by associate error which prevented us from locating a provider who could service their product," Costello said.

Question of Price

"It comes down to a question of price. If the five-year extended warranty were free, I dare say even Consumer Reports would find it valuable. If it were twice the price of the washing machine, nobody would find it to be valuable," said Eric Arnum the editor of Warranty Week, an online newsletter and web site for warranty professionals.

"The goal should be to balance the risk and the reward properly so that it is a value to the consumer, and is financially viable to the seller and to the insurance company that backs it. I think there is a price where that can be achieved," Arnum said.

The Service Contract Industry Council, a trade association representing the extended warranty industry, said service contracts can help consumers save money because the cost of repairs can be greater than the cost of the extended warranty.

However, it tells consumers to avoid purchasing a contract if they feel overly pressured by sales personnel. And for consumers who opt in, the association recommends that consumers read the provisions carefully. Keep paperwork, and use the contract for even small covered repairs to maximize its value.

In Texas, consumers have what's called a free-look period of 30 days. If you buy a service contract, you have 30 days to change your mind and get a full refund for the price of the contract, unless you have made a claim on that contract.

Days after NBC 5 called Sears, the company scheduled a local technician to service Pratt's dishwasher and even offered her a brand new one. But Pratt said Sears is missing the mark.

"I want Sears to change this policy for people. You're saying you can fix it. Then you'd better hire the people and train them to service what you are selling. You're selling a warranty; stand behind that warranty. Do what you say you can do," she said.