Is that warranty a waste of money?

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It’s almost as common as being asked “do you want fries with that?” You finally make it to the checkout with that big-ticket Christmas present and you get asked to spend a bit more on an extended warranty. Is it worth the paper it’s written on?

Unfortunately, there’s no clear answer – it ultimately depends on the type of product you’ve bought and the terms and conditions of the extended warranty. 
An extended warranty is distinct from the consumer guarantee and manufacturer’s warranty.
To recap, the consumer guarantee refers to the customer’s automatic rights when they purchase any good or service. This is stated in the Australian Consumer Law, and applies regardless of whether the product comes with a manufacturer’s warranty. In short, the consumer guarantee states that any good you purchase must match its advertised description and be fit for its intended use. 
The manufacturer’s warranty is cover voluntarily provided by the supplier of the product, which is explained in a booklet. It usually lasts for a few years after you’ve purchased the product. 
An extended warranty is a third type of cover. It works in a similar way to the manufacturer’s warranty, but doesn’t necessarily extend the manufacturer’s warranty; in some cases, it simply means replacing your purchase with an inferior substitute, as the product you originally bought depreciates. 
Rod Sims, Chairman of the Australian Competition and Consumer Commission (ACCC) says that whilst some extended warranties offer valuable protection, it’s not a fundamental purchase.
“Shoppers should realise they may have a right to a repair, replacement or refund beyond the time period of the manufacturer’s warranty”, said Mr Sims.
Although it’s tempting, don’t purchase an extended warranty based on the information given by the salesperson. You should examine the extended warranty booklet rather than make an impulse purchase at the register. As with any major purchases, you should keep all receipts.
Before saying yes at the register…
The NSW Office of Fair Trading recommends customers consider the following questions by reading the extended warranty booklet:
Who is providing the extended warranty? Is it an insurance company, the retailer or manufacturer of the product?
Does it overlap with the manufacturers’ warranty? Ensure the coverage period of the extended warranty begins after the manufacturer’s warranty ends; there’s no point in holding double cover over the same time period for the single product
What exactly does the extended warranty cover? Damage, the replacement of parts, labour? This depends on the type of product you’ve bought. However, shipping costs may not be included. To be eligible for you receive the extra cover you purchased, you may need to regularly take in the product for servicing.
Does the depreciation policy apply, or will you receive full replacement value?
What is the claims policy? How do you lodge a claim, are there extra fees charged for doing so, and is there a limit on the number of claims you can make?
What is the product like? Is it prone to damage throughout the coverage period of the extended warranty? Do you expect the good to have a long life? If your answers to both are yes, then the extended warranty could come in handy.
Compare the costs: what is the cost of the extended warranty, relative to the price you paid for the good? If the added warranty costs almost as much as the good itself, then it’s not worthwhile cover.
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-- By Stephanie Hanna


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