Extended warranties: Are they worth it?
"DO I really need to buy a warranty when I buy new electrical goods? Are extended warranties worth it?"
Warranties do offer a certain amount of peace of mind. No one buying an expensive piece of equipment likes to think about what will happen if it breaks.
And with modern appliances being so technically advanced, even small faults often need more than just a spanner in the right place, making being able to rely on expert mechanics more important - and more costly.
But there's also a bit of psychology involved, because extended warranties tend to play on our fears that the goods will fail as soon as the guarantee expires - and sometimes they're the root of those fears.
That may be why we spend £1 billion a year on them.
But a combination of consumer rights, picking the right method of payment, and tweaking our home insurance can provide the majority of us with just as good a level of protection as shelling out for special cover.
Guarantees versus warranties
A guarantee is a promise. It says that the workmanship and components are of such quality that the item will not fail within a certain length of time, and if it does the item will be fixed or replaced free of charge.
Most manufacturers guarantee their products for a year or thereabouts, but some put their necks out and offer guarantees of up to five years, for example on washing machines.
But because they're about build quality and how the product functions, guarantees do not cover cosmetic or accidental damage.
They add to our consumer rights. So as well as having recourse against a retailer who sells us a faulty product, we're told we can send the item back to the manufacturer - admittedly often through the retailer - to get it fixed.
In contrast, a warranty is an insurance policy. It says that if something happens to an item, the owner is covered for the cost of repairs or replacement, under certain conditions.
It cannot replace or cut into our consumer rights - so if within the first year of ownership an item covered by warranty goes wrong, having that warranty doesn't mean we can't use the protection offered by the guarantee instead, or ask the shop to fix or replace the item.
What a warranty should ideally do is offer further protection - so while guarantees and consumer rights cover operational faults, a warranty should cover problems caused by other things - like accidental damage, for example.
Extended warranties are often sold on the grounds that this is what they're for - basically, offering protection against life - but many people are horrified to discover that after throwing a mug of tea over their laptop, they're not covered.
In addition, a standalone warranty - one not offered by the manufacturer - often won't be honoured if the product is still under guarantee, so having both is pointless.
What a warranty covers
What a warranty does cover varies from store to store, and document to document.
Many do cover accidental damage - but not all. In addition, while they may cover repairs or replacement, they may not cover the cost of call-out and labour charges, or the cost of repairing any other damage caused by the fault.
On top of that, most warranties don't cover wear and tear.
When warranties are offered on vehicles, it's extremely unusual that every part will be covered by the policy - for example, the tires and brakes are almost always excluded.
The same is true of warranties on smaller products. Not every component may be covered - or, more likely, the cover won't extend to every problem that may occur if the product is used as instructed.
That last point is worth noting - if an item has been used in a way it wasn't designed for, only the most generous of companies will cover the cost of putting things right.
No matter what sales staff tell you, no warranty covers "absolutely everything". Initial warranties, like guarantees, tend to be designed to cover craftsmanship and genuine faults - so don't expect to be able to claim for accidental or cosmetic damage.
That's when extended warranties come into their own - but as we've mentioned above, and return to below, there are other ways of getting that kind of cover much more cheaply.
In addition, in some stores, the warranty cover ends the first time a product has to be replaced rather than repaired.
How likely is a fault?
It's actually highly unlikely that anyone buying electrical goods and appliances now will have many problems with them within five years, which is the maximum period covered by most extended warranties.
Research shows that most appliances have a very low chance of needing any kind of repair in the first five years - and as we explain below, any faults that do occur in this time are often covered by legally recognised consumer rights.
On top of that, the Whitegoods Trade Association say that around 30% of the washing machines they've been asked to replace under warranty or guarantee conditions haven't needed any kind of repair, with any issues being caused by installation faults or user error.
Some specialist providers will cover products up to eight years old - but the more likely a product is to be reaching an age when it probably will need repairing, the less likely it'll be there's a warranty that can cover those costs.
How much they cost
Unless bought from a special company, the warranties being sold alongside most products are hugely overpriced.
Consider that, depending on the exact amount of cover required for a typical household, adding accidental damage to home contents insurance can cost as little as £10 for the whole year - for every appliance in the house.
Warranties, on the other hand, can cost that much for just a few appliances each, and every month.
There's one exception: John Lewis.
Since October 2013, the retailer has offered a minimum two year extended guarantee on all home electricals bought there - and a five year guarantee on TVs - for no extra cost.
The sharp-eyed will have noticed that we refer to it as a "guarantee", not a warranty. The name is a deliberate choice on the part of John Lewis, in order to help clear up what's covered and what isn't.
Accidental damage and faults caused by "misuse" - that is, in ways not intended by the manufacturer - are excluded. Anyone who wants accidental damage cover will still need to upgrade to a paid for warranty.
One thing that really isn't made clear enough to the public is that warranties don't have to be bought from the same place as the product.
There's nothing to stop a customer buying a top of the range washing machine from one shop, then looking around for a warranty that gives them the kind of cover they want - for the length of time they want, for a better price.
The sting in the tail here is that many retailers won't sell warranties for items bought elsewhere.
This is the case with Tesco, Argos and Currys/PC World who have signed up to the (limited) comparison service available at Compare Extended Warranties, which stacks up the policies offered by them and one other specialist provider.
But while that may sound next to useless for customers, it does at least allow people to check roughly how much they can expect to pay.
For example, at the time of writing, quotations for a three-year extended warranty, including accidental damage, for a £500 fridge freezer with a one year manufacturer's warranty range between £90 and £130, while a five-year warranty is between £145 and £160.
Anyone who does want to shop around should ask the store for a written quotation, which it's then obliged to honour for 30 days.
Bypassing the retailer
Specialist warranty providers can offer cover from around £6 a month for single items, or around £13 a month for up to three items.
Single item warranties are better for more expensive items, usually up to £3,000 in value - but even the multiple item warranty will cover goods worth up to £2,000.
Do check, though, whether there are annual caps on claims - and how those caps are applied.
For example, a warranty may include a cap on claims of £2,000 per year - but rather than being calculated per repair, the cap may refer to the value of the item being fixed.
So if the owner of a £2,000 home entertainment system claims for it to be repaired under the warranty, they won't be eligible to make any further claims that year.
Check who provides the cover
Anyone still thinking of buying a warranty from the shop they bought their equipment from should consider one more thing.
Some retailers back their own warranties, while others sell branded policies that are underwritten by a separate insurance company. The latter is better.
Should the retailer go bust, anyone with an in-house warranty will be left without any cover. But those whose policies underwritten by an insurance company should find their warranties honoured regardless of the fate of the store.
What cover is provided under law?
As we said at the start, warranties should really add to the protection a buyer has under law - and that protection, mostly in the form of the Sale Of Goods Act 1979, is actually pretty strong already.
Anything that breaks or develops a fault within six months of purchase is deemed to have been faulty when it was sold, and the burden of proving otherwise is on the retailer.
They should therefore be open to repairing or replacing the item in question, or refunding the full cost.
Repairs might not be the quickest option, but they are considerably cheaper and the preferred option for many retailers and manufacturers - and as mentioned above, the majority of issues in the early life of an appliance are often very small.
But once the first six months are over, and the guarantee has run out, owners are still protected. In fact, customers are legally allowed to return goods up to six years after they've bought them (five in Scotland).
It may be harder to prove that the problem is a proper fault rather than wear and tear, so owners should expect some questions about how they use the items.
But the Sale Of Goods Act sets out that items must be fit for purpose and last a reasonable length of time.
So, for example, Mr Jones buys a mid-range cooker. He's a good and careful cook. He can reasonably expect that cooker to last for at least five years.
But it stops working just over a year after he's bought it. Mr Jones is well within his rights to get it repaired or replaced by the retailer.
But someone buying a £25 DVD player can't expect it to have the same build quality as a £300 model, and therefore shouldn't expect it to last as long.
It used to be the case that numerous credit card providers and some packaged bank accounts would extend existing warranties by another year free of charge.
But while this is still very much the case in the US, it's fallen out of favour over here. We look at those who do offer extended warranties here.
Anyone buying a large electrical item should still think about using their credit card to do so, even if it's not one of the very few offering extended warranties.
That's because someone making a purchase of between £100 and £30,000 in value is automatically afforded the same rights against the card company as the retailer.
This is really useful if the shop goes bust. It makes the credit card company liable for the cost of any repairs or replacements during the period covered.
See our full guide to Section 75 protection here.
Those who've used a debit card to pay for their goods have some comeback if the retailer goes bust, under the Chargeback system - we explain more about that here.
Changing your mind
Anyone who finds themselves here because they wanted to be able to justify agreeing to that warranty in store when they bought their new TV last week - take heart.
The snappily titled Supply of Extended Warranties on Domestic Electrical Goods Order gives customers 45 days to change their mind, cancel and get a full refund.
The retailer should agree to a refund within a reasonable amount of time - but there's no legal definition of what that is. Within 14 days is broadly accepted, so suggest that when cancelling.
Beyond 45 days, anyone wishing to cancel is entitled to ask for a pro rata refund.
Customers should work out what proportion of the warranty they can be considered to have benefited from, and request a refund of the balance.
So, for example, someone bought a three-year warranty for £90 two months ago, and now wants to cancel.
The equivalent monthly cost of that warranty is £2.50, and the buyer can be said to have had two months' cover - worth £5. So they're entitled to request an £85 refund.
The same principle applies for people who have claimed on their warranty. Taking into account the cover they've already benefited from, and the cost of the claim, they're still entitled to request a refund for any remaining balance.