Why That Warranty You Bought Might Be Worthless

Extended warranty offers are really a money-spinning deal for sellers: Internet Scambusters #830

Is buying an extended warranty or service contract a waste of money?

It could be, if the warranty firm uses get-out clauses to avoid paying or if the deal is an out-and-out scam.

We’ll tell you why you should think twice about buying an extended warranty and why it might be better just to save your money in case things go wrong.

And now for the main feature…

Why That Warranty You Bought Might Be Worthless

Do you feel confused, bamboozled and even suspicious when anyone utters the word “warranty” to you? Or, when a letter or email arrives saying your warranty is about to expire?

You are not alone. Warranties are supposed to protect you against faults with products you bought. But sometimes they’re like a license to print money for whoever’s offering them.

For instance, did you know that, according to Consumer Reports magazine, retailers and manufacturers who offer “extended warranties” — sometimes referred to as service contracts, a type of insurance that kicks in after a standard warranty expires — pocket 50% of the fee you pay?

That’s one reason why the magazine says you’re better off putting money aside every month to cover faults and repairs, rather than buying a warranty.

With domestic appliances, for example, the publication found that even when a consumer had to pay for repairs themselves, the cost was only on average $26 more than a service contract fee. And bear in mind most consumers don’t suffer a product fault or failure.

It’s worth reading the magazine’s full report: Extended Warranty Buying Guide.

In some cases too, warranties or service contracts are a downright scam, especially when whoever issued them refuses to honor them, either ignoring claims or using small print to wriggle out of their legal commitment.

In one example, the U.S. Federal Trade Commission (FTC) has come down on companies who said they wouldn’t honor warranties if the consumer either used a non-branded part or an unauthorized repair shop, or if the “warranty” seal on the product was broken.

Those restrictions are illegal says the FTC.

More recently, the agency has addressed confusion about the difference between regular and extended warranties, or service contracts.

The cost of a standard warranty usually is included in the price of the product you buy and is covered by the manufacturer. But you usually have to pay for an extended warranty or service contract, which may be issued by an insurer, other third party, or the original manufacturer themselves.

Oftentimes, a sales person will use high-pressure tactics to try to force you into buying the extended coverage at the time you make your initial purchase, warning that the deal won’t be available afterwards and implying you’d be foolish to miss out. That’s because they get paid commission for selling them.

In some cases, the contract you buy might cover exactly the same period of time your manufacturer’s warranty does. Or they may just cover part of the product. Either way, you’re pouring money down the drain.

Other times, you receive an official-looking warranty expiry/renewal notice in the mail, which is actually just sent out on spec to random consumers, when the issuer really has no idea when the product warranty they’re writing about — usually a car — finishes.

Whoever sent it often adds to the buy-now pressure by including a list of the high costs of having to pay for repairs yourself.

If you fall for this, again, you might be duplicating coverage you already have or, in a worst case scenario, just handing over money for nothing to a scammer.

Consumer champion and broadcaster Clark Howard reported this past August that these dubious vehicle service contract (VSC) providers “often go bust and leave their customers high and dry when repair bills need to be paid.”

And he draws attention to small print get-out clauses in one sample bill which insisted consumers making a claim first had to pay a deductible out of their own pockets. They were also required to produce every single receipt showing they had followed recommended service requirements before the policy would pay out.

He suggests that if you can cover the cost of repairs from your own wallet, you should never buy one of these contracts. If money is likely to be an issue, only consider buying coverage from the manufacturer, never from a third party.

We’d also like to add that you should never buy an extended warranty or service contract without first reading it, including the tedious small print, looking particularly for get-out clauses.

And if you’re thinking about buying an official extended warranty on a new auto from the dealer, think twice.

First, this may not be from the manufacturer but just another third-party warranty company. Check who the warranty is from. If it’s not the maker, ask the dealer if the manufacturer offers an extended warranty.

Just as important, bear in mind that the reliability of new cars these days means that claims are rarely made on an extended auto warranty, which often cost a couple thousand dollars. It’s easy money for the seller but not for you.

Alert of the Week

The name of one of the top selling computer games — Fortnite — is currently being used as a cover for a malware virus attack.

Users who click on links on YouTube offering free versions of the game or free additional content are heading into malware misery.

Don’t click!

Time to close today, but we’ll be back next week with another issue. See you then!