Repair & Improve

Are Appliance Service Contracts Worth Their Cost?

by Tom Kraeutler

You found the refrigerator of your dreams — filtered water, icemaker, energy efficient, roomy, attractive stainless steel. You’re just about to sign the credit card slip when the salesman says, “I recommend a service contact. It’s only $62 a year and worth every penny.”

Is it? Are these contracts actually good insurance against repair hassles? Or, do they just add to the profits generated by the more than 63 million major appliances that the Association of Home Appliance Manufacturers (AHAM) estimate will be sold this year?  The answers are maybe…maybe and yes.

Service contracts are like product warranties. They provide repair and maintenance coverage for a certain length of time. Unlike warranties, however, service contracts don’t come “free” with a product; they cost extra.

Salespeople usually make a generous commission from each service contract they tack on an appliance purchase, so they’re very motivated to convince you that your peace of mind is worth the additional investment. But the Federal Trade Commission (FTC) says millions of consumers pay for protection they don’t need.

So, how do you know if a service contract is a good idea? It all depends on the appliance itself, and the coverage offered. Both the FTC and AHAM urge you to do your homework before you buy a service contract:

• COMPARE COVERAGE.  Don’t consider a service contract until you know what the warranty covers. Read both carefully to see if the contract gives you enough additional coverage to be worth the added expense. Be sure to check the exclusions on the service contract, or the things not covered. Are you reimbursed for related damage, like clothing torn in a dryer, or food lost in freezer failure? Also find out what happens if a necessary repair part no longer is available.
• KNOW THE APPLIANCE.  A service contract may be a waste of money if the product you’re purchasing is unlikely to need servicing or if potential repairs are not expensive. Check appliance maintenance and repair records put out by AHAM  (www.aham.org) or Consumer Reports (www.consumerreports.org).
• CHECK EXTRA COSTS. Make sure you know all other costs involved if you buy the service contract. Like insurance policies, service contracts often have deductibles. There may also be a fee each time the appliance is serviced, or a cancellation fee if you wish to end the contract. You may even have to get second opinions or price estimates before a repair is made.
• FIND REPAIR LOCATIONS.  Will a serviceman come to your home, or do you have to bring your appliance somewhere?  Is it local service? What happens if you move and take the appliance with you?
• RESEARCH REPUTATION. The FTC says there is little recourse for the many consumers holding service contracts with companies that go out of business. Before you buy a contract, find out which company will provide coverage then check the company’s reputation by asking your state Better Business Bureau, consumer protection office or insurance commission about complaints against the company.

If you do all the above and you’re still not sure if the contract is worth it, then the best thing might be to wait. Find out if you can buy a contract after you’ve owned the product for a while. In fact, the FTC suggests waiting until the warranty expires.

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