When you need to repair your car, refrigerator, computer, or a major system in your home, it’s comforting to think you won't have to break the bank to pay for the fix. That’s why so many people are open to the idea of buying extended warranties that cover repair costs from the many companies that sell them. 

These protection plans are also sometimes called service contracts or protection policies. But by whatever name, our advice is the same: Skip them.

Extended warranties can have many gotchas, relying on contract fine print to deny coverage for almost any reason. They've become a major source of complaints to the Better Business Bureau and elsewhere.

“Accidental damage may not be covered. And there may be clauses that allow the company to deny coverage if, for example, you don’t follow their instructions for routine maintenance,” says the Federal Trade Commission.

Extended warranties also can exclude a variety of parts. For example, among the refrigerator parts that aren’t covered under one home service contract we recently reviewed are icemakers, beverage dispensers, door seals and gaskets, hinges, lighting and handles. An auto service contract we examined excludes brake drums and rotors, air bags, door handles, lock cylinders, the exhaust system, body panels, among other parts.

Can you demonstrate that the troublesome part wasn’t already broken when you signed up—a so-called preexisting condition? Was the problem caused by a manufacturing defect or by an accumulation of sentiments, rust, mildew or mold? Is it a cosmetic issue that doesn’t affect an item’s performance? All of these can be reasons why a provider will reject your claim.

Some extended warranties simply duplicate the express warranty coverage you have the manufacturer, which you’re required to use first.

And along with the initial cost and deductibles, some plans charge a fee every time you make a claim.

If the plan allows you to use your own repair shop, as with many auto extended warranties, the shop typically has to obtain approval from the provider before beginning work, a big hassle that some shops might consider too much trouble.

Yet another concern is that providers can go out of business, leaving customers without the coverage they paid for, warns the FTC. That’s a particular issue with third-party extended warranties, as opposed to those provided by product manufacturers.

Extended Warranties Might Sound Good

Some companies make lots of promises while hawking extended warranties, leaving the gotchas to the fine print, if they disclose them at all.

In August, the Washington State attorney general filed a lawsuit against Comcast Corporation, one of the nation’s largest telecommunications providers, accusing it, among other things, of charging customers at least $73 million in subscription fees for a near-worthless protection plan. The plan was promoted as covering a home’s inside wiring and customer-owned equipment connected to Comcast services. But the lawsuit charges that Comcast didn’t properly disclose that the plan didn’t apply to wiring located inside the walls, which it said is the vast majority of wiring in the home. The plan also didn’t cover repairs to customer-owned equipment, only the cost of the technician's visit, the lawsuit said.

Despite being told about the problems more than a year ago, the attorney general said, company made changes only recently.

In a prepared statement, Comcast said the plan has given customers “great value by completely covering over 99% of their repair calls.”

“We stand behind our products and services and will vigorously defend ourselves,” it said.

They're Not Worth the Cost

This doesn’t mean that all extended warranties are bad or that you can't possibly come out ahead by purchasing one. But even the best plans likely aren’t worth the money you spend on them in the long run.

Many products these days are highly reliable and unlikely to need a major repair, or even a minor one, before you’ll want to replace them. And with technology changing so quickly for cars, computers and many other items these days, that replacement time can come more quickly than you think.

And you can go broke buying extended warranties to cover everything in your life. Coverage for a car alone can cost thousands of dollars a year.

Also consider that many credit cards automatically extend for a year or so the manufacturers’ warranties on products you charge, making a service contract even less attractive.

And just because a manufacturer’s warranty has expired doesn’t necessarily mean you’re out of luck. Many manufacturers have so-called goodwill programs to pay part or all of the cost if a product breaks down in an unreasonably short period, especially if it’s because of a known issue in the design or manufacture. And you also might have so-called implied warranty rights that apply to the manufacturer, retailer or both, that can extend the scope and duration of your protection.

Finally, depending on your skills and the extent of the problem, you might be able to fix it yourself. There are so many the do-it-yourself videos and web pages available these days, many of them provided by companies that sell parts for much less than you'd pay a repair shop.

A Better Way

Start by buying reliable products, and maintain them as the manufacturer recommends. Instead of purchasing extended warranties, self-insure by putting the money you'd spend on one into a savings account or dedicated product repair and replacement fund.

If something needs repair or maintenance, pay for it out the fund, without having to negotiate any fine-print limitations or other nonsense. If you don’t end up needing repairs, use that money to replace the item when the time comes.

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