Every time you purchase an appliance or electrical item it seems to be accompanied by an option to buy an extended warranty, but are they worth it?
Extended warranties are a form of insurance policy that’s designed to kick-in once the manufacturer’s or retailer’s guarantee has expired. These policies can be expensive but can be very profitable for retailers.
Gone are the days where a cooker or TV would last 30 years and would be very expensive to replace. There is a belief today that goods are built to a higher standard, but they don’t seem to last as long as the good old days. It may be true that technology has advanced significantly, but at the same time electrical goods have fallen considerably in price over the years creating a throw-way society.
But are extended warranties really worth the money? Thanks to consumer rights in the UK, you already have statutory rights which offer consumers a high level of protection.
The 1979 Sale of Goods Act is a powerful piece of legislation which states that goods should be of satisfactory quality, fit to do the job intended and last a reasonable length of time.
If you buy a new TV or washing machine and it breaks down within six months, you can take it straight back to the shop – and it’s up to them to prove that the appliance was not faulty when you bought it.
In fact, you’re legally allowed to return goods up to six years after you buy them – though it gets harder to prove that a fault and not normal wear and tear is the cause of any problem.
Check the manufacturer’s and retailer’s existing guarantees
Before paying for an extended warranty, remember that manufacturers not only guarantee their goods for up to 12 months, but some offer a standard two years warranty. Vehicle manufacturers now offer up to seven years protection when buying their vehicles, with some offering ‘lifetime guarantees’.
Plus, some retailers such as John Lewis will top up the period of guarantee on top of that of the manufacturer – for free. This can add up to five years total cover, and it’s all included in the price.
Credit card protection
Another form of protection is choosing to purchase your goods by credit card. The law states that card companies (not debit cards) have to protect consumers from being driven into debt by buying faulty goods.
The good news is you’re automatically covered on any goods valued between £100 and £30,000. It is also worth bearing in mind that some credit card companies and banks may also offer extended warranties on your purchases.
Home contents insurance
I am definitely not a fan of using home and contents insurance to protect goods. Standard electrical and mechanical breakdown are not usually covered by your domestic contents insurance, but theft and accidental damage are.
There is an argument that there is no point paying twice to cover the same thing, but there is a major downside to claiming on your home and contents insurance.
You spill water on your ipod or a water pipe bursts causing water to poor through the ceiling which damages various electrical goods. These two examples could be why you may claim on your home insurance. The latter would be a much bigger claim with costs to replace carpets, repair structural damage, redecorate and replace damaged goods. This claim would be significant compared to the cost to replace an ipod, aprrox. £750.
Don’t forget that unlike extended warranties home insurance is subject to an excess which can vary depending on insurers and previous claim history. Take away your excess which could be £200 and you could be making a claim for £500 on your home insurance.
However, making a claim on your home insurance will lead to an increase in premiums the following year which raises the question is it really worth making a small claim on your home insurance.
Are extended warranties for electrical appliances value for money?
According to The Money Advice Service the answer is that many are probably not, for a number of reasons.
- Most electrical goods and appliances are getting cheaper over time
- They’re also getting more reliable, so you’re less likely to need a warranty
- At the same time, repairing is getting more expensive as appliances get more complex – so it can be cheaper to buy new than repair
- Technology is advancing, so replacement goods are not only usually cheaper, but are often going to be better than the one you had before – perhaps more energy efficient and so cheaper to run, or with the latest features included in the price
Which? recently carried out research about how likely a new TV or fridge or other appliance is to break down. They discovered that most new electrical goods and appliances are actually very reliable and have a very low chance of needing repair in the first five years.
They also found that extended warranties for everyday appliances from some suppliers were expensive – for example, the cost of an extended warranty on one £260 washing machine was £170 – more than half the cost price.
Most retailers sell extended warranties for electrical appliances and white goods. However, the Office of Fair Trading, which was responsible for protecting consumer interests throughout the UK before it closed on 01 April 2014, said that, although they can offer certain benefits:
- They are often not value for money
- Retailers don’t offer enough information when they sell extended warranties
Also, warranties often have time limits for the repair, which might be as long as four to six weeks, so you need to think about whether you would want to wait that long for your appliance to be repaired. For example, could you manage without a washing machine for six weeks?
Some policies cover repair costs, but not all of them cover parts and labour, while others place a cash or time limit on claims – so you have to read the details very carefully before signing up.
Some retailers also sell insurance for appliances you already own but which are not currently insured – but these come with lots of conditions and usually a ‘no-claim’ period immediately after the start of the cover during which claims for breakdown won’t be paid.
What’s more, some policies are really only ‘service contracts’ so are not regulated by the Financial Conduct Authority, or covered by the Financial Ombudsman Service. That means if the retailer goes bust there’s no guarantee that your claim will be paid.
You can compare costs and features of extended warranties from a number of providers on the free Compare Extended Warranties website.
Want to buy an extended warranty? Follow this checklist
- Shop around – specialist insurers are often much cheaper than retailers, and multi-appliance deals can offer better value.
- Check how long it will last and think about how long you are likely to keep the item.
- Do the terms provide a new for old replacement if the item cannot be repaired?
- Check the exclusions – do you have to use an authorised repairer?
- Is there a limit to the number of claims you can make or the amount you can claim for? Does the cover stop once you have made a claim?
- Read the small print very closely, especially for loopholes and exclusions.
- Be careful of extended warranties where you pay monthly – over the long term these can work out to be very expensive.
- Is it a service agreement, not a guarantee? These are not regulated by the Financial Conduct Authority (FCA) and therefore if the company goes under you have no legal protection.
Normally you have legal rights to cancel the warranty up to 45 days after purchasing it and get a full refund (you can get a pro rata refund after that). So even if you buy one, there is still time to reconsider or shop around for a better deal.