Every time you go to buy a car or an electronic product these days, you will most probably find the salesman trying hard to sell you a service plan – known as extended warranty – along with the product. Sometimes you may also find the offer tempting, particularly if you are buying a costly product and there is a high probability of its repair costs being high in the event of the product getting damaged or if there is the failure of a major & expensive part.

However, even if you go for such a plan, what is the surety that the bucks spent on it won’t go wasted? For, the salesman may simply be pushing for the plan because that is a cash cow for him. It always, therefore, makes sense to buy such a plan only after weighing all its pros and cons. But before that let us take a look at what an extended warranty actually is.

What is extended warranty?

An extended warranty, in fact, is a prolonged warranty – given in addition to the standard warranty — which is offered to consumers on the purchase of a new product.

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We already know that warranties and guarantees are safeguards for customers who are assured of a limited period of fail-proof service and performance from the products they purchase. During that period, the manufacturer of the product promises to cover manufacturing defects or fix problems arising during normal usage at no cost to the customer.

Normally, mechanical, electronic and electrical products are sold with limited warranty as per the manufacturer’s own policies. “Cars, TV, fridge, invertors, home power generators, air conditioners, cell phones, and computers are some popular items sold with warranty. After the expiry of the warranty period, you cannot claim free services, replacements, or repairs from the manufacturer. To improve upon this situation, many manufacturers now offer extended warranties over and above the warranty period ordinarily offered on their products. This extension, however, comes at a price to be paid by the customer,” says Adhil Shetty, CEO, BankBazaar.com.

Types of extended warranties

There are basically two types of extended warranties. One type of extended warranty is offered by the manufacturer of a product, and the other type is offered by a third party. While the former type of warranties provides convenience to consumers, the later is generally provided with additional features.

Conditions aplenty

Extended warranties come with several conditions. Violations as specified in the warranty document would render the warranty null and void, and the manufacturer would refuse to cover your repair or replacement costs.

There could be specific exclusions in the warranty which mention defects and problems that would not be covered. For example, “under an extended warranty for a car, car makers mention that you cannot seek repairs from unauthorised service providers, cut certain wires, carry out repairs on your own, or get unauthorised fittings and parts. Doing so would lead to the cancellation of the warranty,” informs Shetty.

Similarly, an extended warranty for a laptop could be nullified under certain circumstances, such as damage from faulty electrical points, or water spillage. Similar conditions are placed on cell phone warranties as well.

How can extended warranty help you?

If you use your products in a manner or in an environment where a breakdown is highly probable, you should certainly get an extended warranty. This would save you from the high out-of-pocket repair or replacement costs. For example, if you drive a car daily for long hours and the road condition is poor, the chances of a breakdown of the mechanical parts are high. And having an extended warranty could potentially save you lots of money.

“An extended warranty is also handy when you know you’ll be using a product for a long length of time, and if replacing its parts is expensive. It would help save on maintenance costs during a breakdown,” says Shetty.

Take for example the costs of fixing a broken panel on an LED TV. Once, the owner of the TV got an extended warranty for Rs 7000 for a period of two years. When the panel broke, the manufacturer responded to the service request immediately and replaced the panel that would have cost him Rs 30,000 in an ordinary situation. This provided massive savings to the TV owner.

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How to purchase

Here are the key points to consider while purchasing an extended warranty:

1. Assess the number of years for which you are expecting to use the product.

2. Check the cost of extended warranty over the product’s cost.

3. Check the parts and repairs covered under the extended warranty.

4. Check the terms and conditions that can violate the warranty.

5. Go for the extended warranty if you are looking to use the product for a long period, i.e. 5 years or more if it is a car, and 3 years or more if it is a TV or a laptop.

6. The cost of extended warranty should also be reasonable in comparison to the breakdowns you expect every year.

Be very careful, though, about violating the terms of your warranty. Doing so would not only nullify the price you paid for the extension, but also require you to pay the full cost of repairs and replacements from your pockets.

When to avoid

Extended warranties are usually very useful, but you must know their limitations and conditions before going for one. Buy an extended warranty only if you’re certain that you can follow the conditions of the warranty.

Also, “if you usually take due care of the products you buy and handle them with care, you can consider skipping an extended warranty. But if the parts and services are potentially expensive, you can go for it,” says Shetty.

You can also avoid an extended warranty if it is not giving enough coverage for the product. In other words, if it is only covering small wear and tear, but not the cost of a costly breakdown or damages which are beyond your control.

Extended warranties are not useful even for those who change their products frequently. For instance, if someone doesn’t use his smartphones for more than a year or two, what is the use of getting an extended warranty on the new phone he has just purchased?