Product Warranties, Who Needs Them?

A warranty or service agreement is really just an insurance policy covering the cost involved in either replacing or repairing consumer products or durable goods.  This policy is normally presented to you at the time of purchase when you are typically given an inquisitive look by the sales clerk or the cashier as to whether or not you wish to purchase the protection and are then given a split second to make your decision.  It is a good strategy to walk into the store having given thought to this decision beforehand and then prior to completing the purchase of the item reviewing the manufacturer’s warranty at the store before reaching the cash register, this way you are able to make an intelligent cost effective decision on the matter.   But before making your final decision on whether to go ahead and purchase the warranty, you must also weigh some additional information: if you purchase the item using a credit card, will your particular creditor of choice double the manufacturer’s warranty as a benefit to its customers?  Also, you must analyze the useful life of the product you are purchasing and determine whether it would be less costly to simply replace the item by purchasing a new one rather than buying the extended warranty and waiting for it to become effective. 

When you begin to investigate the option of purchasing an extended warranty, you’ll want to apply the same criteria that you would if you were purchasing a policy of life insurance, however in this case the life you are insuring is that of the products and not your own.  First consider the type of product involved along with its expected useful life, then the track record of the manufacturer and lastly the warranty the manufacturer attaches to the product.  Further consideration should be given to acquiring the warranty in several situations: 1) The product in question is inexpensive and is manufactured by a relatively new company without a solid product and service track record.   2) The product you are purchasing is a high end product which you cannot be with out should it break down.   It is important to note that with many products, labor charges alone could be extremely high and overshadow the cost of the warranty policy.   

It is also important to consider that warranty policies and service agreements are generally high profit margin sources for retailers.  It is estimated that extended warranty policies generate upwards of $15 billion each year in premiums paid by consumers, half of which is pocketed by the retailers.  It would appear that consumers are certainly purchasing more in the way of extended warranty policies than they are able to utilize or truly need.  So carefully evaluate the risk you are taking on given the information noted above and weigh this against the retailer’s predisposition to both selling you and profiting from your purchase of such policies.  

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