Warranties and service contracts: Worth the risk?

Are warranties and extended service contracts any good?

I suppose it depends on the item covered and the fine print attached. Obviously, people who write these things are betting you won’t need them. That’s how they make their money — and often lots of it.

The other day, I bought a cheap clock to hang on the garage wall. On the box was written: “five year limited warranty.”

That sounded pretty good for a AA battery-powered Chinese import. But the real facts weren’t revealed until I opened the box and read the details. It stated the following:

“This clock is warranted to be free from defects for five years from the date of purchase. If it fails, return the clock (you pay postage) with proof of purchase to the address listed on this statement. Include a check for $5 to cover handling costs.”

So let’s see: To enact the terms of the warranty, I have to box it up, take it to the post office, pay $11 to ship it and include a check for $5 to cover “handling.” Total expense: $16.

Doesn’t sound too bad until you realize that the cost of a new one is only $4. I can buy four new clocks for the price of just having one repaired under warranty! Whoever thought of this one should get the “Conman of the Year” award.

But what about large ticket items, such as extended service contracts on new cars?

I usually don’t buy these agreements and have been fortunate to beat the odds on major repairs. But last month, I got talked into it by a dealership finance and insurance guy.

What sold me was the amount of gimmicks and electronic gadgets found on new cars these days — especially luxury vehicles. If anything goes wrong, I know the repairs will not be a few hundred, but a few thousand dollars.

Yet somehow, I still feel suckered. Not that this major car company wouldn’t honor the agreement, but the question for me is: “Will I ever need it, or did I just throw away around two grand? It’s the extensive and complicated electronics that have me worried.

I checked with a friend who holds a degree in electrical engineering. His opinion was if electronic components are going to go bad, they will do so within the first three years. If he’s right, this would take place under factory warranty included with the new car. That would make the extended plan unnecessary.

But on the other hand, the circuit board in my home upstairs furnace just went bad after 10 years — so who knows?

I still have time to cancel the extended service contract. I know the manufacturer and dealer are betting I won’t need it. But somehow, a little voice in my head keeps saying to keep it.

Was that message put there by a smooth-talking salesman, or am I really making a wise decision? My wife’s friend with the same make of car (although a much older model) just shelled out sixty Benjamins for electronic repairs.

I’ve decided to take the bet that something will go wrong, although my track record at gambling is pretty pathetic. As a matter of fact, the service contract might outlast me. But at least I won’t have to worry about expensive repairs for a number of years to come.

As for that cheap clock? The last one hanging on my garage wall lasted about five years and I’ll bet this new one will too.

If not, at least the cost of a replacement won’t change my lifestyle.

However, a modern automobile instrument panel that no longer wants to function could end with a completely different scenario.