Extended Warranties
Eighty to eight-eight percent of all dollars spent on extended warranties end up as profit

Every now and then I get suckered. I consider myself a pretty hard-nosed shopper, but whenever I'm buying something out of my sphere of understanding, I'm susceptible. All a sales person need do is tut-tut about the potentially expensive repair bills and I'm there, willing to mitigate my losses with a little fix-it-free insurance. The correct nomenclature is "extended warranties" and they're offered on everything from computers and electronics, to fridges and stoves to television sets and stereos. Perhaps the most ridiculous offer I was presented with - and the one that made me wake up, finally - was the extended warranty suggestion made by a sales person in a consumer electronics store for a child's toy. It wasn't even a particularly expensive toy, especially since I was buying it on sale. And as soon as she said it, the salesperson looked a little shy about her suggestion.

Extended warranties are sold on the premise that bad things happen to good people, and wouldn't you just hate to have to pay all that money for repairs when this inexpensive little contract can give you all the protection you need. Some experts claim that the post-purchase letdown - also referred to as buyer's remorse - plays a large part in desire for protection.

Having just spent a whack of money, we want to protect our investment, and we see extended warranties as the perfect solution. Compared to the big-ticket item we just shelled out for, the cost of the extended warranty is peanuts.

There are two types of extended warranties:

• a manufacturer's extended warranty for an extra charge, and
• a retailer's or third-party extended coverage for future repair costs, which is really a service contract.

Consumer Reports magazine says buying extended warranties isn't a good use of your money since only 12 to 20 per cent of the money paid for extended warranties is ever used to pay for repairs or claims. The other 80 to 88 percent is pure profit. It seems we're doing a pretty good job of building those fridges, computers and remote-control cars. If they don't break down in the first few weeks while they're still covered by the manufacturer's original warranty, they aren't likely to break down for a long, long time.

Of course, there's nothing so reliable as picking a well-known name brand. You also have to put your new product through its paces before the manufacturer's warranty expires. So if you wait two years before using the self-cleaning option on your new oven only to find out the lock won't engage, you've no one to blame but yourself.

Since many credit cards offer extended warranties on products that they are used to purchase, you may be able to get the good feeling you're looking for in terms of protecting your latest purchase simply by paying for it with the right piece of plastic. Some cards even cover the item if it is lost, stolen or broken within a specific period. That's way broader coverage than you could get with a store-bought warranty. Better yet, it's free.

I've always found that being a loud mouth goes a long way to getting things fixed even if the warranty has recently expired. If you return to the store armed with your receipt and strongly express your disappointment (don't let them take you into the manager's office where the other customers can't hear your dismay) and you can make the case that you're a loyal customer, the seller may fix or replace the item just to maintain your good will. `Course, that means you'll have kept your receipt along with the manual so you can prove where you bought it.

If you're determined to buy an extended warranty because the item you're buying is the single most expensive thing you've purchased this year and you're convinced if you don't get it the darn thing will break down, make sure you know what the warranty covers.

• Are parts covered? How about the labour involved in fixing the item?
• Who will do the repairs? Will you pay the cost for shipping back and forth to have the repairs done?
• Who pays for the repairs? The last thing you want is a policy where you pay up front and then have to submit a claim for reimbursement. Is there a deductible?
• How does the cost compare with the item you're buying? If the cost of the warranty represents more than 10 to 15 percent of the price you paid for the item, it's way too expensive.
• Will the warranty provider be around to provide the service if you need it? Well-known retailers and manufacturers are probably safe. But I'd take a pass on third-party service providers.

Don't just take the salesperson's word for what your policy covers. If you don't have the time to look for the answers to the questions above before you put down your money, don't buy the insurance since you could be buying a pig in a poke. Many are the stories from people who try to claim on their warranty only to find out that what they're claiming for isn't covered because it was deemed to be the result of an "accident." So shop smart and skip the extended warranty.