We’re fast approaching that time of year where normally sensible people suddenly make the most absurd purchases.
Whether it’s knitted reindeer jumpers or “Best of Boney M” CDs, Christmas trees across the nation will be littered with some frankly regrettable purchases.
This may go some way towards explaining why sellers of one of the worst types of insurance choose this time of year to aggressively punt their product.
Get a home insurance quote hereDon’t be a Christmas turkeyExtended warranties cover you for any repair costs you may need on a purchase. You can buy a policy to cover anything from TVs to cars - even Christmas lights – but they are primarily used for electrical goods.
Why does it offer such bad value? It’s extortionately expensive for starters, costing up to 50% of the product you’re looking to cover.
Also, you’re already protected against buying faulty products by the Sales of Goods Act, which states traders must sell products of satisfactory quality or the customer must be compensated. Plus many products come with a manufacturer’s warranty that covers you for up to 12 months anyway.
Extended warranties can also come with a host of exclusions – wear and tear, accidental damage or damage by computer virus – that negate its usefulness. And finally, your
home insurance policy may already provide the cover you need.
Click here for a car insurance quoteSales technique stinks tooWhat makes it worse is the way it’s aggressively sold in store, forcing customers to buy it on impulse rather than actively seek it out (no doubt anyone who has bought an electrical good recently has been harangued by some overzealous salesperson about the importance of an extended warranty).
These policies are underwritten by an insurer, but the retailers receive commission on every one they sell, making profit their motivation, not customer satisfaction.
I’ve always found it paradoxical that retailers can even sell these policies along with their goods in the first place: On the one hand they’re convincing you to part with a big wad of cash on the premise that you’re getting a high quality product in return.
They then turn around and pressure you to pay for an additional warranty on the basis that your “quality” purchase could break down at any second - hardly confidence boosting, to say the least.
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A practical exampleSo just how much do extended warranties cost? As they are largely sold with electrical goods, EveryInvestor went online and conducted a bit of electronics ‘window shopping’ (all in the name of research, of course) to find out.
We settled on a couple of goods from Dixon’s, as they are a household name and a good indicator of what you can reasonably expect to pay. For a 32 inch LCD TV from Toshiba, value £459, a three year warranty will set you back £169 – 37% of the TV sale price.
For an EI PC with 1GB memory and 160GB hard drive, value £220, you can get five year’s cover for £129 – that’s 59% of the computer’s price.
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It’s just bad valueIn defence of Dixon’s, it is fairly comprehensive cover, but the price is just unbelievably high. This is especially true of electrical goods, as they have a terrible rate of depreciation so you’re paying to insure something that’s rapidly declining in value.
Plus both the above products come with a 12-month manufacturer’s warranty, as do most electrical goods (we should mention here that Dixon’s conveniently omits this fact on its product pages, but does make repeated references to its own warranty).
That means the extended warranty essentially kicks in once the product is one year old. Factor in depreciation, and it’s possible that the cover actually costs more than the device is now worth.
As an afterthought, taking out a lengthy extended warranty on a computer is always a terrible idea. You may think it’s the device most likely need upkeep, but consider this - a brand new PC becomes obsolete within four or five years. Buy long term cover for it, and for the last two years you’ll be paying to insure something you can no longer use.
Get a home insurance quote hereYou’re not buying fine chinaObviously goods do break down, but technology is constantly improving and products are becoming more resilient.
According to the Radio Electrical and Television Retailers’ Association (RETRA), the display in a regular LCD flat panel is designed to last 40,000 viewing hours. And here are some more stats to put your mind at ease.
-Electric Cookers: 8-10 years
-Dishwashers, washing machines: 4–8 years
-Low priced portable TVs: 3-5 years
-Higher priced non-portable TVs: 5-8 years
-Low priced VCRs and DVDs: 2-5 years
-Higher priced VCRs and DVDs: 5-8 years
Click here for a car insurance quoteStill want one? Ok then
If you still want to buy an extended warranty, make sure you don’t simply accept the one offered by the seller, as chances are you can get a substantially cheaper policy elsewhere.
We did a quick search online and got a quote for three years cover on the aforementioned Toshiba TV for £124 - a saving of £45 or nearly 40% compared to Dixon’s in store cover.
If you have purchased it from a retailer, you may be able to cancel the policy shortly after the fact. Read more about cancelling a policy
here.
Get a home insurance quote hereA final word
As we said at the start, Christmas is a time for outrageous purchases. But at least with the knitted reindeer jumper you get to make a family member look rather silly for a day before it mysteriously goes missing.
Take out an extended warranty – especially direct from the retailer – and you’re essentially buying that jumper for yourself.
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