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14 Dec 2011

Extended warranties are poor value, says Which?

New research shows warranties are overpriced

Five-year warranties on some washing machines can cost over 60% of the appliance price

New research from Which? indicates that arranging an extended warranty when you buy a kitchen appliance or television is probably a waste of money.

In one instance, Which? found a five-year extended warranty on a washing machinewith a relatively small chance of needing repair in the first five years would cost £170, when the initial price of the appliance was only £260.

Similarly, a five-year extended warranty on a Sony Bravia KDL-40EX723 television purchased at Currys would set you back £269, or 34% of the set price of £799, withthe television only having a 3% likelihood of needing repair in the first five years.

OFT is looking into the market

The Office of Fair Trading (OFT) is currently carrying out a short market review looking at extended warranties. It's not the first time they've come under scrutiny by the OFT.

The Supply of Extended Warranties on Domestic Electrical Goods Order 2005 was introduced to ensure that retailers provide clear information on extended warranties, to introduce a 45-day cooling off period and to combat so-called 'pressure selling'.

A subsequent review in 2008 found that some problems still existed around providing the required information. This latest review is focusing on the structure of and competition in the market, i.e. where and when people tend to buy extended warranties, and the relative pricing of warranties.

Improving reliabilityand falling prices

Paul Davies, insurance analyst at Which?, questioned the value of extended warranties: 'Many people still opt for extended warranties to provide peace of mind, but they're not always your best or most cost-effective option.

'There will be times when an unexpected breakdown might catch you out, but on balance it appears that paying for repairs as and when they occur is your best bet, assuming that you've opted for a reliable brand.

'With appliance prices falling and reliability continuing to improve, consumers are increasingly choosing to replace rather than repair.

'Putting money aside in case you do need to repair an appliance seems more sensible than paying for an extended warranty up-front. If it doesn't break down within five years, you've made a good start towards funding a new model when it does.

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