Warranties and Service Contracts
A good warranty can help keep money in your pocket when necessary repairs arise. On the other hand, a bad warranty does little more than take extra money out of your pocket. That's why it's important to only buy warranties that will actually help you save money and give you peace of mind.
How Warranties Work
Warranties are typically purchased for a specific item when the purchase is being made, making the warranty part of the total purchase price. The warranty is similar to an insurance policy in that it's designed to cover the costs associated with repairs or replacement. Like insurance, a warranty is supposed to help people avoid unexpected costs. Unlike insurance, warranties typically pay for repairs without additional deductible costs.
Most people think of cars when they think of warranties because new car warranties are so aggressively sold by car salespeople. While car warranties can be a good idea for both new and used cars, it's important to realize that car dealerships aren't the only source of car warranties. Sometimes buying a car warranty from an alternate source - like an insurance company or a financial institution - can save money and result in a better warranty deal overall.
Homeowners know all too well that stuff around the house has the tendency to break at the worst time. A home warranty can help cover the costs of unexpected repairs. Typically, a home warranty covers appliances as opposed to the house's structure. Roof repairs or damage from a burst water pipe will more likely be covered by an insurance policy. But if the oven stops working or the refrigerator goes on the fritz, the home warranty covers the cost of repair. For those who don't want to purchase an entire home warranty, buying an appliance warranty specific to a singular appliance is often an option at checkout.
Items that are more expensive - and which are costly to repair - usually are sold along with the option for a warranty. Cameras, for example, are a good example of these types of items as warranties are typically offered as an easy option when buying the camera. Products that have a tendency to break might feature so-called hidden warranties that aren't necessarily publicized.
Some warranties only cover the cost of parts for repairs, but not for the labor costs associated with the repairs. It's important to understand the limits of a warranty agreement's liability to cover repairs. Something as small as first attempting the repair yourself can void a warranty for which you've already paid.
Worth the Money?
A lot of debate has gone on regarding whether it is worth a consumer's time and money to purchase warranties. In most cases, the answer really depends on the terms of the contract. This is why it is important to carefully read the fine print and determine if the coverage meets your individual needs at a cost that is reasonable. Remember that most new products are unlikely to need major repairs shortly after purchase, so if the warranty coverage is short term or expensive relative to the replacement cost of the product, it may not be in your best interest to purchase the coverage.