Don't get us wrong; there are many situations where it's a good idea to shell out extra money for an extended warranty. Remember, though, that it won't will truly come in handy if you haven't done your homework before you buy.
Chief among these situations is when you purchase an expensive item. If you plan on spending several thousand dollars on one thing, it may be worth the extra few hundred dollars to make sure you're covered a little longer in case your purchase goes pear-shaped. The more expensive an item, usually the more expensive it is to fix, so it may make sense to invest in an extended warranty for big-ticket purchases.
Reading reviews of the item you want to buy can also lead you to a sound conclusion on an extended warranty for it. If you notice the product has a reputation for breaking easily, but you're bent on buying it no matter what, an extended warranty makes sense. It makes even more sense if the item is a durable one that should last for several years, like a PC. In fact, personal computers are one of the likeliest big-ticket items to go on the fritz, with a 37 percent chance of needing repair within three years following purchase [source: Bradford]. Extended warranties for PCs also generally come with tech support, which can be costly without a warranty.
Another good bet for an extended warranty is one that covers a rear projection TV. The bulbs in these televisions are supposed to last about 5,000 hours. If you're an average American, you'll likely watch enough television to burn out its bulb within the life of the extended warranty [source: Grant].
You should also do a little self-reflection when considering an extended warranty purchase. If you conclude that you're an absent-minded, clumsy oaf, it might be in your best interest to spring for one. With that said, you must make sure you know what you're paying for ahead of time. While some extended warranties cover repairs or replacements for accidental damage, loss or theft, not all do. Purchasing extra coverage for a new cell phone is usually a good bet, since cell phones are small and easily misplaced (be sure you read the warranty, since water damage usually isn't covered). Extended warranties for cell phones are designed for lost or accidentally damaged phones. Usually they come with a monthly fee of a few dollars tacked onto your phone bill and you'll pay a deductible. However, the combined monthly cost and the deductible is usually less than what you'd pay to replace a phone out of pocket.
The same goes for an item you plan to use extensively. In November 2008, NPR reported on David Axelrod, chief strategist for Barack Obama's successful presidential bid. Describing Axelrod's work ethic, reporter David Schaper said, "David Axelrod is the kind of guy who wears out Blackberries. Wears them out or breaks them" [source: NPR]. Because of the endless texting and e-mailing that someone with a job that requires constant communication would expect to undertake with a BlackBerry, it would be wise to purchase an extended warranty.
If you opt for an extended warranty, purchase it directly from the manufacturer, if at all possible. It's generally much cheaper than one purchased from a retailer.
More often than not, though, paying extra for an extended warranty is a bad bet. See why on the following page.