Have you found yourself standing at the counter while you’re completing a purchase when the pitch comes? The pitch for the extended warranty on that TV, camera, washing machine, car…you name it. If you can buy it, someone will give you a warranty on it.

The questions start innocently enough. Do you want the extended warranty that covers that item should it break? They can get a little more intense. Do you know how expensive it is to fix? One service call is a gazillion dollars! Don’t you want to protect that investment?

What do you do?

Consumer reports magazine says don’t buy it. So does the Better Business Bureau, The Federal Trade Commission and the US Consumers Union.

In fact, very few products have a serious failure or need repair in the first 5 years. Products are being made much better today.

Consumer Reports did a survey of tens of thousands of readers. Most of the time, the cost of the warranty exceeded the cost of the repair.

They suggest falling back on the manufacturer’s warranty. Usually it is better than an extended warranty. Make sure you have a GOOD manufacturer’s warranty. That’s the best homework you can do.

Let’s take electronic equipment for an example. The manufacturer’s warranty usually lasts one year. Studies show electronics will fail in the first year or not at all.

The question is, why do they offer the extended warranty? Because that’s where a lot of money is made. In fact, extended warranties is a $15 billion a year business.

Extended warranties make up about 60% of the profit made by a department store.

Ten to twenty percent of the money paid for extended warranties is ever used to pay for repairs or claims. The other 80-88% goes into the profit margin of the 3rd party that is selling the warranty.

The house sets the odds. For every $100.00 it gets when they sell an extended warranty, it pays out $20 bucks at the most.

Electronics companies often make more from the extended warranty than from selling the product they cover.

Put a little more homework into the purchase. Then, pass on the extended warranty. Here’s what the experts say.

Buy products with a record of reliability.

If the product doesn’t have a good manufacture’s warranty, don’t buy it.

Use a credit card. Your card should offer an extended warranty if you use it. You did do your homework and got that feature on your credit card, didn’t you?

Make sure you register the warranty.

Test the product right away. Make sure it works within the manufacturers warranty period. Know what that is and make sure you’ve tested the product.

Never buy an extended warranty on an appliance. The odds that a major appliance will need a repair that falls under the extended warranty are only about 8%.

What do you think? Do you buy the extended warranties? Have you ever come out ahead in the deal? Let me know...marc@homeworkhouston.com.