In a September 6 piece, Why you should avoid home warranties, Consumer Reports again takes a shot at service contracts. Noting a recent complaint filed by New Jersey regulators against Choice Home Warranty for allegedly making it difficult to obtain benefits, CR “recommend[s] avoiding service contracts” because those “that cover homes and cars, for example, can cost hundreds of dollars.” But what if the car or home costs many thousands of dollars? Isn’t spending a few hundred bucks on a service contract worth it to minimize risk and secure peace of mind? “No,” says CR, “it makes much more sense to buy reliable products and maintain them as the manufacturer recommends.” Now it’s clear, just buy things that won’t malfunction or fail.
In short, CR’s advice to consumers is to choose risk over the protections afforded by a service contract because there’s a “good chance” (50%?, 80%?, 95%?, it doesn’t say) you won’t need to make any “significant” repairs before the product becomes obsolete. Does this argument even apply when, for example, you’re talking about a car or a home’s appliances or HVAC system? I wouldn’t think so.
For risk averse consumers, CR does offer these suggestions: put the money you would have spent on a service contract into “a product repair-and-replacement fund.” Sounds like good advice, but is it realistic? What are the odds that monies will be there when needed? And will a couple of hundred dollars be enough if a car or home needs “significant” repairs? Seems kind of risky to me.
CR also suggests other ways a consumer may be able to obtain free or low-cost repairs after a manufacturer’s warranty expires: credit card warranty extension programs and auto manufacturer goodwill and service and recall campaigns. But programs like these are not available a home buyer. And I doubt many people buy cars with credit cards. Also, while car makers continue to become more and more customer friendly in the context of goodwill and service campaigns, it still seems that a consumer banking on an out-of-warranty campaign being there when needed is leaving a lot to chance.
Finally, CR points out that the implied warranty of merchantability (a legally implied promise that the product is reasonably fit for its intended use) accompanies many purchases under state law and may legally obligate retailers or manufacturers to address a product defect even after an express warranty has expired. But some states only impose the implied warranty between a buyer and the immediate seller (and not the manufacturer) and many permit sellers to disclaim liability under the implied warranties. Plus the time for making a claim under an implied warranty may be limited to 1 year. So before a consumer makes a buying decision based on the implied warranty of merchantability, he or she better conduct some legal research or consult an attorney.
Better yet, when it comes to service contracts consumers should simply follow CR’s “smart-buying tips:” don’t buy under pressure; shop around; go all in; read the small print, and consider an extended warranty for the long haul.
Just as it would be foolish to say that a consumer should buy an extended warranty on everything he purchases, it is equally absurd to say that a consumer should never buy one.