LEGAL MATTERS: Are Extended Warranties Worth the Money?

Thursday, December 20, 2012

John T. Longo, GoLocalWorcester Legal Contributor

Extended warranties and accidental damage protection plans are a waste of money. If you doubt that, put aside the glossy brochure, ignore what the salesperson is saying, and read what will matter when you try to make a claim—the small print. Here is what you are likely to find:

Breaks vs. Breakdowns

An errant Wii controller flies off someone’s wrist and cracks the screen on your new TV. The TV is definitely broken. But it did not suffer a “breakdown” according to the Wal-mart Product Care Plan so they can deny your claim.

Breakdowns vs. Covered Breakdowns

Water splashes on your new camera wrecking its internal circuitry. Fried circuitry is a textbook example of a breakdown. The repair facility takes it apart and notices a hidden moisture detection sticker indicates the camera got wet. You lose; breakdowns caused by the introduction of “foreign objects” are excluded from the Sears Protection Agreement you bought.

Normal Wear and Tear vs. Accidents and Abuse

During an excited Halo 4 competition, your kids yank the cord on the new Xbox so hard they break one of the connections. Parents might consider that damage from normal wear and tear. Unfortunately, the Toys-R-Us R Buyer Protection Plan considers it accidental or abusive damage so they can deny your claim.

Accidents vs. Real Life Accidents

You put your iPad on the roof of your car, buckle-in your child and drive away. Your iPad is iSmashed. You think you’ll get a free replacement because you distinctly remember the BestBuy salesperson saying the Geek Squad Protection Plan was different and it would cover all accidents and even broken screens. But the small print says ‘no coverage’ for falls from moving cars.

These examples deal with consumer electronic items but you will find the same loopholes in plans covering appliances, cell phones, outdoor equipment, cars and even jewelry.

Ignoring their dubious value, stores place tremendous pressure on front-line employees to sell warranties—setting quotas, awarding bonuses and forcing out non-performers. In my experience, the store managers then pretend they don’t hear the wildly exaggerated promises their employees make about what the plans cover. To understand how greed, or just a store’s survival instinct, can trump honesty, consider a few years ago SmartMoney reported that as much as 50% of BestBuys’ profits came from selling protection plans. 50%!

Despite the legal loopholes in the plans, they do cover some problems. Consumer Reports, the most reliable source for shopping advice, studied how infrequently those covered problems occurred, how often they were already covered by free manufacturer’s warranties, and the actual cost of fixing them. Its verdict?: “We've long found extended warranties to be a bad deal for you and advise against buying them but stores keep pushing them because they are so profitable.”

A better alternative to an extended warranty is shopping with a credit card that automatically extends the manufacturer’s warranty. Earlier this year CardHub reported that was a standard benefit with all American Express and Discover cards and with most MasterCard and Visa cards.

For More Information

Read Consumer Reports’ thoughts on extended warranties.

John Longo is a consumer rights attorney practicing law in Rhode Island and Massachusetts. He represents consumers who have disputes with businesses, employees cheated out of their wages or overtime, car buyers stuck with Lemons, and people in need of bankruptcy protection. He is a member of the National Association of Consumer Advocates, the National Association of Consumer Bankruptcy Attorneys, and the Rhode Island Association for Justice.

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