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Extended warranties a big sell. Are they worth it?

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WASHINGTON — Offers of extended warranties or service contracts are becoming the norm, whether you buy a big-ticket item like a car or kitchen appliance or a less expensive one like a television or phone.

The plans basically are insurance policies in case something goes wrong, but they come at a price.

Federal Trade Commission staff attorney Svetlana Gans says consumers should research a service plan before deciding whether to buy an extended warranty. But she acknowledges that could be difficult, since many of them are offered at the same time the product is purchased.

The FTC says on its website that a service contract "might not be worth the price."

And Anthony Giorgianni, associate finance editor of Consumer Reports' Money Adviser newsletter, says, "You can go broke basically insuring everything you buy."

So how do you decide whether to purchase one?

"I would definitely look at the duration and when the coverage actually starts," Gans says. If it begins immediately, does it overlap with the manufacturer's warranty?

Also, consider whether the service plan costs more than repairs would, she says.

Find out what's covered and what's excluded, Gans advises. Does it cover spilling coffee on your computer keyboard, for example, or just defects in the device itself?

And if something goes wrong, where do you file a claim or bring the product for repair? This is important since many service-contract providers are third parties, not the stores where the item was purchased, she says.

One of those providers is SquareTrade, which offers protection plans for a range of smartphones, computers, electronics, home appliances and other products. Ty Shay, the company's chief marketing officer, says purchasing a protection plan is "an individual decision — how you feel about the item and whether you can live without it."

Shay said the company has sold tens of millions of protection plans, working with retailers like Costco, Sam's Club and Amazon; you can also buy its plans online. SquareTrade's plans are for products bought within the previous 30 days.

They cover accidents, drops, spills and other malfunctions, but not loss or theft. If you have a problem with an iPhone, for example, SquareTrade gives you the option of getting a replacement phone overnight or taking the phone to an Apple store for repairs and then being reimbursed for the cost to fix it.

For repairs on appliances, Square Trade's protection plans provide in-home service, Shay says.

Consumer Reports' Giorgianni doesn't think service contracts are worth the money.

"You're basically paying a fee on the possibility that the thing may malfunction, break or other ways go bad in ways that will conform to the fine print in that coverage," he says.

Consumers would be better off, he says, amassing a repair fund should something go wrong. "I love extended warranties and service contracts but only the ones you sell yourself," he says. "Look at the price of that contract and put the money in the bank and hold it there."

Some consumers might have another option: extended coverage through home insurance.

"All personal property under the homeowner policy could be covered, as well as the main systems of the home," says Rebecca Galovich, assistant vice president of personal lines at Hartford Steam Boiler, which provides home-systems protection coverage.

"Insurance coverage is designed for the accidents regardless of the cause," she says. "It could be human error. It could be improper maintenance."

For example, she says, a flat-screen TV might fall off the wall. "Your warranty is not going to cover that type of event."

Galovich says HSB works with more than 200 property and casualty companies to provide coverage, but the company wouldn't identify them. She suggested that consumers ask their insurance providers whether the coverage is available.

The FTC's Gans, meanwhile, cautions consumers to be wary of telemarketers selling service contracts by phone.

If you have problems with service contracts or their providers, you can file a complaint with the agency, she says.

Online: http://www.consumer.ftc.gov/articles/0240-extended-warranties-and-service-contracts