Information on Extended Warranties
1. Consumers are often asked whether they want to purchase an extended warranty when they purchase a product. Are extended warranties worth the money?
When you purchase most consumer products such as a car, a major appliance, or an electronic device, you must be informed under federal law if the product is covered by a written warranty from the manufacturer. Federal law requires that the manufacturer’s warranty be available for you to review before you buy. A manufacturer’s warranty is already included in the purchase price of the item.
Service contracts covering future maintenance or repairs of the item for a specific time are not warranties as defined by federal law. Although they are often referred to as “extended warranties”, service contracts cost extra and are sold separately. For an automobile, the costs of a service contract range from a few hundred dollars on up. Again this is a separate charge over and above the cost of the manufacturer’s warranty which is already included in the purchase price of the item.
2. What should a consumer look for when purchasing an extended warranty?
You should review the terms of the so-called “extended warranty” carefully before making a decision to buy a contract for future service. To determine if you need a service contract, consider: whether the existing product warranty already covers the repairs and the time period of coverage that you would get under the service contract; whether the product is likely to need repairs and the potential costs of such repairs; the duration of the service contract; and the reputation of the company offering the service contract. You want to know if the service contract covers all parts and repairs or only a limited few and what you must do in the event you make a claim. You may want to delay making a decision to purchase a service contract until after you have owned the product for a while.
Many service contracts sold by dealers are handled by independent companies called administrators. In considering the reputation of the of the company offering the service contract, you can contact the Office of Consumer Protection, the Better Business Bureau or the Federal Trade Commission to find out if the company has an existing complaint history. Unfortunately, these administrators have been known to go out of business during the life of the service contract and cannot pay claims. There may little recourse available to consumers in the event the company goes out of business.
3. How should a consumer weigh whether to purchase an extended warranty versus just sticking with the manufacturer's warranty?
Again you should carefully weigh whether it makes sense to buy a service contract covering the same time period as an existing manufacturer’s warranty. You already paid for the manufacturer’s warranty when the item was purchased.
4. Autos, appliances, computers and other technological devices probably are most likely to have extended warranties. Which one of these do you think is best to purchase an extended warranty and why?
This is a decision that should be made only after considering the foregoing information. There is no one size fits all answer. Inform yourself and ask questions before deciding to buy a service contract. Again ask yourself if the product is already covered by a manufacturer’s warranty, do you need to pay the additional cost of a service contract?
5. For homeowners, companies like American Home Shield offer warranties for many household items with one annual purchase price. How would you weigh whether to buy a warranty from a company like American Home Shield versus individually buying warranties for various items?
The same considerations apply. You need to carefully consider the factors listed above before deciding whether to purchase any service contract. Primary among these is the nature and scope of the manufacturer’s warranty and the length of the original warranty. You may also consider waiting until the original manufacturer’s warranty is nearing expiration before making such a decision. You don’t need to buy expensive service contract if you intend to replace the item at that time.
6. Are there any types of frauds that consumers should look out for regarding warranties?
You should be suspicious if you receive unsolicited mail or phone calls about renewing your car’s warranty. Check your owner’s manual, call the auto dealer who sold you the vehicle or contact the vehicle’s manufacturer directly if you have any questions.
Be alert to fast talkers. Telemarketers pitching auto warranties often use high-pressure tactics to hide their true motive. Take your time. Most legitimate businesses will give you time and written information about an offer before asking you to commit to a purchase. Do not give out personal financial information or other sensitive information like your bank account number, credit card number or Social Security number, even your driver’s license number or Vehicle Identification number (VIN) to telemarketers.
Again if you have any doubts about buying an “extended warranty”, please take the time to educate yourself about what you are buying and to learn about the company that is providing the “extended warranty”. If you have any doubts whatsoever about the product or the company, check with the Office of Consumer Protection, the Better Business Bureau or the Federal Trade Commission or go to their websites for more information.
7. What should a consumer do if there is a dispute about a warranty, such as an item not being covered or the warranty not being honored?
If you have problems with a product or with getting warranty service:
Read your product instructions and warranty carefully;
Try to resolve the problem with the retailer;
Contact the Office of Consumer Protection, the Better Business Bureau or the Federal Trade Commission;
Research dispute resolution programs that try to informally settle any disagreements between you and the company. Warranties often include alternate dispute resolution provisions;
Consider filing an action in small claims court; and
If all else fails, you may want to contact an attorney.
For automobiles, Hawaii has a new car “Lemon Law” statute in Chap. 481I of the Hawaii Revised Statutes which may be helpful in resolving disputes over automobile warranty claims. For Lemon Law inquiries, you may contact the DCCA’s Consumer Resource Center at 587-3222.