Extended warranties are not just for cars anymore. You may be offered one when you buy an appliance, electronic device, sofa, or even a pair of shoes. So, is it worth the extra cost? That depends on several factors.

What is the standard warranty?
Many products already come with a standard warranty from the manufacturer. Find out what it covers and how long it lasts. Also, if you make the purchase with your credit card, see if additional protection is provided – many gold and platinum cards extend the warranty for free. Even if there is no written warranty, most products come with an “implied warranty”, which dictates that something must do what it is manufactured and advertised to do. For example, if you buy an oven, you have a right to expect that it cooks food. Think about if you want protection beyond what you are already getting for free.

What are the terms of the extended warranty?
It is crucial to know what you will be getting for your money. How long does the warranty last for? Does it only cover repairs due to defects or premature breakdown or does it also cover ordinary wear and tear and accidents? Does it cover all parts of the product or only certain parts? Does it cover labor costs or just parts replacement? Can you get the repairs done anywhere or do you have to take it to an authorized repair shop or ship it back to the manufacturer? A fabric protection plan for a sofa that only covers grape juice stains on the middle cushion and requires you to ship the whole sofa to a shop in Oklahoma is less appealing than one that covers stains from any material on any part of the sofa and sends someone to your house to do the removal.

How reliable is the product?
It makes less sense to shell out the cash for an extended warranty for something that has little chance of breaking down. Historically, the consumer items that are most likely to need repairs include computers, refrigerators with ice makers, lawn mowers, and washing machines. Conversely, refrigerators without ice makers, electric ranges and cooktops, digital cameras, and tube televisions have a good track record for reliability. Of course, within the same category, reliability can vary from manufacturer to manufacturer. Consumer Reports is a good source of information for product ratings. If the brand that you are interested in is unreliable, instead of getting an extended warranty, it is usually better to go with a brand that is more reliable (unless the cost difference is significant).

What is the cost of the extended warranty versus the cost of the product/repairs?
A $20 warranty may be a good deal for a $1,000 refrigerator, but not so much for a $40 phone. As a general rule of thumb, you should not purchase a warranty for more than 20% of the purchase price. However, even if the extended warranty is cheap, if the product itself costs little and/or you plan to replace it in a year or two, an extended warranty is probably overkill. An extended warranty also doesn’t make sense if it would cost about the same to repair it – just put the money in savings instead.

Carefully weighing the extra protection provided against the reliability of the product and costs can help you determine if you should say yes when the salesperson asks, “Would you like to purchase the extended warranty?”