News Room

By Gregory Karp, Tribune reporter

The Super Bowl is big, a big sporting event that provides a big excuse for consumers to buy a big-screen TV. While many consumers will spend hours researching the type of television they want, they may be blindsided at the cash register by the question of buying an extended warranty for the TV set.

The decision is not just for TVs. Extended warranties, also called service contracts, are offered on everything from cell phones and refrigerators to cars and homes. Typically, an extended warranty lengthens, and in most cases overlaps, the manufacturer’s warranty.

It’s a huge business. Americans bought 250 million warranties in 2010, according to the Service Contract Industry Council.

“We continue to see the number of contracts sold nationally increase,” said Stephen K. McDaniel, a council spokesman.

Despite their apparent popularity, service contracts are generally panned by consumer advocates. Their advice: Just say no to buying extended warranties.

Consumer Reports, for example, doesn’t recommend buying them in any product category. It regularly calls them “notoriously bad deals.”

“It’s a very expensive insurance policy that doesn’t give you much bang for your buck,” said Mark Kotkin, director of survey research at Consumer Reports National Research Center.

But the warranty industry is evolving, with new coverages, prices and providers that might provide better value. The Service Contract Industry Council is working with state governments on laws aimed at providing more consumer disclosures about warranties, McDaniel said.

Focusing on extended warranties for electronics, here’s what you need to know to make an informed decision.

What consumer advocates say

• Most products don’t break during the warranty period. If they malfunction right away, they’re covered by a store return policy or manufacturer warranty.
• The cost of the warranty is almost as much as the cost of a repair. So, buying a warranty is like paying for most of a repair, whether you need one or not.
• You can self-insure by setting aside the same money in a repair fund. If the item doesn’t break, you get to keep the money.
• As a general rule, you shouldn’t buy insurance for little things, only for financial disasters. If a repair cost won’t wreck your finances, you probably don’t need the coverage.
• Some higher-tier credit cards will extend the manufacturer warranty for free if you purchase the item with the card.
• The benefit of a warranty is mitigated if you have to pay a deductible.
• A warranty might call for replacement with a refurbished unit, not a new one.
• The extended warranty usually starts when you buy a product, largely duplicating the manufacturer warranty for some length of time.
• You know warranties are a bad deal for consumers because electronics retailers make a huge share of their profits from them.

What the warranty industry says

• Warranties extend your protection, providing peace of mind for typically 10 to 20 percent of the cost of the item. If a warranty costs more than that, make sure there’s a good reason, McDaniel said.
• Extended warranties usually offer service and protection a manufacturer warranty does not. That includes in-home repair or replacement, generally quicker turnaround for repairs, around-the-clock and weekend technical support, coverage for damage caused by power surges and the ability to transfer the warranty.
• If you regret buying a warranty, you can cancel, typically within 30 days, for a full refund, not a prorated one. That applies in most states, McDaniel said.
• Repair prices are often more expensive than warranty costs. An LCD television costing $550 would typically have a service-plan cost of $55 to $110, while the cost of repairing a main system board, for example, might cost $375, according to the Service Contract Industry Council.
• A self-insure repair fund is a good idea, but, as a practical matter, consumers won’t set aside money for repairs.
• Some extended warranties cover accidents. As electronics become smaller and more portable, there will be more dropped laptops and cell phones in the toilet. Manufacturers typically don’t cover accidental damage.

Bottom line

Probability and simple logic say that buying extended warranties is a bad bet if your goal is to save money. If warranty companies paid out more in claims than they charged, they would go out of business. But while warranties will be bad deals for many people, they will be good deals for those who make claims for more money than the warranty cost. And for some, extended warranties might provide peace of mind, a value that’s hard to quantify.

So, if you’ll make a big purchase to watch the Super Bowl on a new big-screen TV, make sure you’re not making a big mistake by not thinking critically about the extended warranty. And if you’re unsure, know that you can buy an extended warranty after you leave the store.

Third-party warranties

A third party might provide more coverage for a lower price. SquareTrade, for example, generally gets good reviews for extended-warranty prices and service on electronics. A two-year extended warranty on a top-of-the-line $830 iPad tablet computer, for example, costs $96 at SquareTrade but $310 at Best Buy. To get a warranty directly from SquareTrade, go to the website squaretrade.com or buy from a few retailers it works with, such as Amazon.com, Buy.com and Crutchfield.

SquareTrade guarantees to fix or replace your item in five days. Other third-party extended warranty companies for electronics include Safeware (safeware.com), and Worth Ave. Group, (worthavegroup.com).

Warranty advice exceptions

Consumer Reports softens its stance on extended warranties in a couple of instances. One is for Apple computers. It might be worth getting a warranty, not so much for repair coverage but to extend Apple’s excellent telephone technical support, which it provides for only 90 days, said Mark Kotkin, director survey research at Consumer Reports National Research Center. An extended warranty lengthens that to two or three years.

Another exception is if the warranty is very inexpensive relative to the cost of the item it protects. Kotkin gave the example of a $50 warranty on a large-screen plasma TV, which might sell for $600 to $800. That leads to a corollary: Extended warranty prices are often negotiable. Surveys show consumers are very successful at haggling, he said.

A final concession is that Consumer Reports surveys show that retailers and manufacturers generally honored extended warranties, Kotkin said.