Extended warranties - are they worth the cost? Like most insurance policies, extended warranties are a guard against risk: the risk of premature failure/breakdown of the product being warranted. They are frequently offered on new and used cars, appliances, electronics, and other household goods.

Extended warranties are a common source of profits for the makers of these products. There are also a number of third parties who offer extended warranties, especially on vehicles that are reaching the end of the original manufacturer's warranty.

Consumer Reports did a study of extended warranties several years ago, concluding, in general, that extended warranties were not a good buy-the amount of money saved, on average, was not worth the cost.

However the extended warranty, for many people, is not just about money, it is a source of comfort or peace of mind.

The extended warranty products offered frequently have a better profit margin built in, than the profit from selling the product in the first place.

These days most auto profit margins are extremely thin, so warranties are pushed to give dealers a little more profit per vehicle.

Many extended warranty offers you get called about at home, at the end of the original warranty, are offers from third parties. These may be perfectly legitimate, but be sure and check them out. With a quick internet search, it is usually possible to get feedback on a company or product-take the time to look.

The majority of buyers of new cars, so far in 2009, have actually purchased warranties suggesting consumer unease about their own abilities to finance repairs in the next few years.

Many extended warranties on consumer electronics cost anywhere from 20-70% of the original cost. Many consumer experts do recommend purchasing warranties on products whose use may be above average or known to have a more unreliable lifespan.

In summary extended warranties are not recommended unless you:

• Will sleep better at night.
• High use item that might require more frequent replacement/repair.
• Need confidence of a quick replacement and have no reserve savings.

If you do purchase an extended warranty, make sure you read all the fine print, including information such as deductibles and exclusions that may make the warranty worthless to you.