Extended Warranties You Should Avoid

Consumer advocate groups are almost unanimous in their caution about purchasing an extended warranty contract for the following products:

  • New and Used Automobiles. According to Consumer Reports, automobile extended warranty programs account for thousands of complaints with the Better Business Bureau. Michelle Corey, head of the St. Louis Better Business Bureau, says complaints about extended warranties in the St. Louis area are “nothing short of astounding.” Consumer advocates are especially critical of third-party auto extended warranty programs since they may limit who can perform repairs, often require lengthy approval before repairs can be made, and require the owner to pay the costs of repair before being reimbursed for the repair work. Ron Montoya, senior consumer advice editor for Edmunds, warns, “A number of these third-party (auto warranty companies) are fly-by-night operations that go belly-up within a few years, costing consumers hundreds of dollars in out-of-pocket repairs and leaving them without coverage.”
  • Mobile Phones. Glenn Derene, electronics editor for Consumer Reports, claims extra-cost insurance or warranties rarely pay off due to their monthly insurance premiums of $10 or more and deductibles of $100. “Skip the extended warranties, as well. They have similarly high up-front costs and service deductibles.”
  • Computers and Consumer Electronics. As a rule, according to Consumer Reports, extended warranties are poor buys, especially for computers. They do allow for some exceptions where technical support is included with the warranty or if theft and accidental damage is covered.
  • Home Warranties and Appliances. Home warranties top the list of consumer complaints received by Angie’s List, primarily due to the differences between what customers expect and what the service plans actually deliver. There are exclusions – lack of maintenance, improper installation, excessive wear – as well as limitations. For example, repairs or replacement for a $12,000 boiler may be limited to $1,600.

man purchasing a cell phone with an extended warranty plan

Overview of the Extended Warranty Industry

Being asked to add an extended warranty to a purchase is commonplace these days, whether buying consumer electronics, household appliances, or automobiles. Even homes and their furnishings, new and used, can be protected by an extended warranty. Manufacturers and retailers, recognizing the huge profit potential in extended warranties, aggressively pursue their sale. The sales pitch starts with a point-of-sale placards in the product display area and continues through checkout when the cashier offers to include the extended coverage in the sale.

Extended warranties are very lucrative for the companies who offer them, with profits estimated to be 50% to 60% of the premium, according to a report published on ResearchGate. Warranty Week, the newsletter for warranty management professionals, estimated that Apple’s extended warranty sales in 2015 brought in about twice as much money as went out for claims. And The Motley Fool claims that the national retail chain Best Buy makes more than half its profits from extended warranties, more than they make from selling electronics and appliances.

According to the Global Warranty and Service Contract Association, extended warranty premiums were almost $41 billion in 2015 and covered the following:

  • New and Used Automobiles. Representing 41% of the total premiums for service contracts, most contracts are purchased from the automobile dealership at the time of sale. While each of the major auto manufacturers has a captive program, the largest provider of automobile extended warranties is The Warranty Group of Chicago, Illinois. Insurance companies such as USAA also offer automotive extended warranty options.
  • Mobile Phones. Mobile phone service contracts account for almost a quarter of the total warranty premiums. In addition to manufacturers of cell phones like Apple and Samsung, retailers such as Best Buy and wireless carriers such as Verizon and AT&T offer more comprehensive plans with coverage for theft, loss, and damage. Surprisingly, almost one in five mobile phone owners drop them in the toilet, according to Digital Trends. Third-party providers like SquareTrade, Protect Your Bubble, and Mobile Rhino are considered some of the better extended warranty plans by Gadget Review, an independent reviewer of technological products and services.
  • Computers and Consumer Electronics. Accounting for 18% of total premiums, extended warranties for computers – especially tablets and laptops – are sold by major retailers including Walmart, Best Buy, and Staples, as well as the online retailers of Dell, HP, Acer, and Lenovo. Third-party providers are especially active in the electronics segment of extended warranty plans.
  • Home Warranties and Appliances. The smallest segment of the industry (8.5% of premiums) is for service contracts covering the contents of the home, such as appliances and heating and cooling systems. American Home Shield dominates the home segment, while retailers like Sears, Home Depot, and Lowe’s account for the majority of appliance warranties.

The Service Contract Industry Council, the national trade association of the extended warranty industry, claims to represent manufacturers, insurers, retailers, providers and administrators of service contracts accounting for 80% of all appliance, consumer electronics, home, and vehicle service contracts sold in the United States.

couple buying a tablet pc with extended warranty

Ritz-Carlton® Rewards Credit Card

5 Points Per $1 Spent at Ritz-Carlton and Marriott Properties; 2 Points Per $1 on Airfare, Car Rentals & Restaurants 

ritz carlton rewards credit cardThe Ritz-Carlton Rewards Credit Card earns you 5 points per $1 spent at Ritz-Carlton and Marriott properties; 2 points per $1 spent on airfare, car rentals, and restaurant purchases; and 1 point per $1 spent on everything else, all with no limits or restrictions. At the end of each year, your annual points earnings get a 10% boost.

You can redeem your points for free nights at Ritz-Carlton and Marriott properties (except Ritz-Carlton EDITION properties), as well as for gift cards, airline miles with Lufthansa and other airline partners, and vacation packages. Redemption minimums vary by redemption method.

The Ritz-Carlton Rewards Credit Card’s sign-up bonus is very nice: 2 free nights at select Ritz-Carlton hotels (Tier 1-4) when you spend at least $4,000 in 3 months.

The biggest drawback of this card is the eye-popping annual fee – at $395, it’s several times higher than most other cards on this list. However, it has tons of benefits that offset this cost: a $300-per-year travel credit good for airline seat upgrades, airport lounge access, and other perks; a $100 annual credit for hotel incidental expenses; and more.

  • Sign-up Bonus. Earn 2 free nights at participating Ritz-Carlton Hotels (Tier 1-4) when you spend $4,000 within 3 months of account opening.
  • Key Fees. The annual fee is $395. There are no foreign transaction fees. Balance transfers cost the greater of $5 or 3%, and cash advances cost the greater of $10 or 5%. Late payments range from $15 to $37, depending on balance. Returned payments are $37 each.
  • Introductory APR. There is no intro APR.
  • APR. The purchase and balance transfer APR is a variable 16.24%. Cash advances come with a 25.24% APR, and there’s no penalty APR.
  • Other Perks. Cardmembership comes with a $300 annual travel credit to offset seat upgrades, baggage fees, and airport lounge access at one selected airport lounge. It also comes with a $100 hotel credit, for use toward dining, recreation, and spa services, with any two-night paid stay at participating Ritz-Carlton properties. You’re entitled to an upgrade to Ritz-Carlton Club Level 3 times per year on paid stays of up to 7 nights, subject to availability.

Citi® Hilton HHonors™ Reserve Card

10 Hilton HHonors Points Per $1 Spent at Hilton Hotels; 5 Points Per $1 Spent on Airfare & Car Rentals

citi hilton hhonors reserve cardThe Citi Hilton HHonors Reserve Card earns 10 Hilton HHonors bonus points per $1 spent on hotel stays within the Hilton portfolio, 5 points per $1 spent on airfare and car rentals, and 1 point per $1 spent on everything else. Points can be redeemed for hotel stays and incidental expenses at variable rates and minimums. As long as you remain in good standing, you enjoy Hilton HHonors Gold Status, which entitles you to a free night on stays of 5 days or longer and automatically boosts your total point earnings by 25%, with no maximums or restrictions.

This card comes with a great sign-up bonus. When you spend at least $2,500 within 4 months of signing up, you earn 2 weekend nights at select Hilton portfolio hotels and resorts. Also, the Private Pass Program – which includes a host of VIP deals and concierge services – is a great fringe benefit.

  • Sign-up Bonus. When you spend at least $2,500 within 4 months of account opening, you get 2 weekend nights (standard room, double occupancy) at one of more than 4,000 Hilton portfolio hotels worldwide. That’s a value of $400 or more, depending on where you stay.
  • Key Fees. There’s a $95 annual fee but no foreign transaction fees. Balance transfers cost the greater of $5 or 3%, cash advances cost the greater of $10 or 5%. Late and returned payments cost $35 each.
  • Introductory APR. There is no intro APR.
  • APR. The purchase and balance transfer APR is a variable 15.49%, depending on prevailing rates. The cash advance APR is 25.49%, while the penalty APR is 29.99%.
  • Other Perks. Extra perks include Citi’s Private Pass program, which gives you special access, VIP treatment, and other benefits at sporting events and concerts. Cardmembership also comes with 24/7 travel and event booking. And when you spend $10,000 in a given year, you get an additional free weekend room night on your cardmember anniversary.

Citi® Hilton HHonors™ Visa Signature® Card

6 Hilton HHonors Points Per $1 Spent at Hotels; 3 Points Per $1 Spent at Supermarkets, Drugstores & Gas Stations; No Annual Fee

citi hilton hhonors visa signature cardThe Citi Hilton HHonors Visa Signature Card earns 6 Hilton HHonors bonus points per $1 spent on hotel stays within the Hilton portfolio; 3 points per $1 spent on drugstores, supermarkets, and gas stations; and 2 points per $1 spent on everything else. There are no restrictions on how many points you can earn.

Points can be redeemed for hotel stays and incidental expenses at variable rates and minimums. Point values vary by property. As long as you remain in good standing, you enjoy Hilton HHonors Silver Status, which entitles you to a free night on stays of 5 days or longer and automatically boosts your total point earnings by 15%, with no maximums or restrictions.

This card comes with a great sign-up bonus: 75,000 bonus points when you make at least $2,000 in purchases within 3 months.

  • Sign-up Bonus. Earn 75,000 bonus points when you make at least $2,000 in purchases within 3 months of account opening.
  • Key Fees. There is no annual fee. Foreign transactions cost 3% of the total transaction amount. Balance transfers cost the greater of $5 or 3%, and cash advances cost the greater of $10 or 5%. Late and returned payments cost $35 each.
  • Introductory APR. There’s no intro APR.
  • APR. The purchase and balance transfer APR ranges from 15.49% to 19.49%, depending on creditworthiness and prevailing rates. The cash advance APR is 25.49%, and the penalty APR is 29.99%.
  • Other Perks. You can upgrade to Gold Status, which comes with a points boost of 25%, when you stay 4 times within 3 months of account opening or spend $20,000 in your first year. The card also comes with Citi’s Private Pass benefits, including VIP treatment and special access at popular events.

Hilton HHonors™ Card from American Express

7 Hilton HHonors Points Per $1 Spent at Hilton Hotels; 5 Points Per $1 Spent on Supermarket, Gas Station & Drugstore Purchases; No Annual Fee

american express hilton hhonorsThe Hilton HHonors Card from American Express earns you 7 Hilton HHonors points per $1 spent on hotel stays within the Hilton portfolio and 5 points per $1 spent on supermarket, gas station, and drugstore purchases. Both categories have no spending caps or restrictions, making this a great card for frequent travelers who want to earn points on everyday purchases, too. You can redeem points for hotel stays and incidental charges at variable rates and minimums, depending on the hotel property.

This card has some nice fringe benefits. For instance, you enjoy Hilton HHonors Silver status, which entitles you to a free night on stays of 5 days or longer and automatically boosts your total point earnings by 15% (unlimited), for as long as you remain in good standing. Furthermore, the sign-up bonus is very solid: 40,000 bonus points for spending just $750 within 3 months of account opening.

  • Sign-up Bonus. Earn 40,000 HHonors points when you spend at least $750 within 3 months of account opening.
  • Key Fees. There’s no annual fee. Foreign transactions cost 2.7% of the total transaction amount. Balance transfers and cash advances both cost the greater of $5 or 3%, and late and returned payments cost $37.
  • Introductory APR. There’s no intro APR.
  • APR. The purchase and balance transfer APR ranges from 15.49% to 19.49%, depending on creditworthiness and prevailing rates. The cash advance APR is 25.49%, and the penalty APR is 29.49%.
  • Other Perks. The card gives you Silver status (15% points boost) automatically, but you can upgrade to Gold status (25% points boost) through the end of the following year, when you spend $20,000 in a calendar year.

IHG® Rewards Club Select Credit Card

5 IHG Rewards Points Per $1 Spent at Intercontinental Hotels; 2 Points Per $1 on Gas, Groceries & Restaurants 

ihg rewards club select cardThe IHG Rewards Club Select Credit Card earns you 5 IHG Rewards points per $1 spent at Intercontinental Hotel Group hotels, which includes properties such as Staybridge Suites and Holiday Inn. You also earn 2 points per $1 spent at gas stations, grocery stores, and restaurants, and 1 point per $1 spent everywhere else. There aren’t any spending caps or restrictions.

The IHG Rewards Club Select Credit Card also has a nice sign-up bonus. When you spend $1,000 within 3 months, you get 60,000 bonus points.

You can redeem points for hotel stays at select Intercontinental properties, including most Holiday Inn and Holiday Inn Express locations. Redemption minimums vary by property brand and redemption date. When redeemed, points are generally worth about $0.005 each, though that amount varies by brand.

You also get a 10% rebate when you redeem points. The bonus points drop back into your account – so if you redeem all 30,000 points in your account, you’re left with a point balance of 3,000.

  • Sign-up Bonus. Earn 60,000 IHG Rewards points, good for up to $300 in stays at select InterContinental Hotels (including Holiday Inn and Crowne Plaza), when you spend at least $1,000 within 3 months of account opening.
  • Key Fees. The card carries a $49 annual fee, waived for the first year. There are no foreign transaction fees. Balance transfers cost the greater of $5 or 5%, and cash advances cost the greater of $10 or 5%. Late payments cost $15 to $37, depending on balance size, and returned payments are always $37.
  • Introductory APR. There is no intro APR.
  • APR. The regular purchase and balance transfer APR is 16.24%, variable with prevailing rates. The cash advance APR is 25.24%, and there’s no penalty APR.
  • Other Perks. In addition to the 10% redemption rebate, you get one free night per year at select IHG hotels for as long as you remain in good standing. You also qualify for Platinum Elite status.

Marriott Rewards® Premier Credit Card

5 Marriott Rewards Points For Every $1 Spent at Marriott & Ritz-Carlton Hotels;  2 Points for Airline & Rental Car Purchases

marriott-rewards-premier-cardThe Marriott Rewards Premier Credit Card earns you 5 Marriott Rewards points for every $1 spent at Marriott and Ritz-Carlton hotels worldwide. Additionally, you earn 2 points per $1 for purchases made directly with airlines and rental car agencies (purchases through online portals like Kayak and Expedia don’t count). Restaurant purchases also earn 2 points per $1 spent. All other purchases earn one point per $1. There are no spending caps on any category.

The value of Marriott Rewards points varies by redemption method, but they can be worth more than $0.02 apiece when redeemed for stays at lower-cost hotels. Redemption minimums vary by hotel class, but start at 7,500 points.

The Marriott Rewards Premier Credit Card also has a very generous sign-up bonus: When you spend just $3,000 in the first 3 months of card membership, you get 80,000 Marriott Rewards points.

  • Sign-up Bonus. Earn 80,000 bonus Marriott Rewards points when you spend at least $3,000 within 3 months of account opening. Additionally, you can get 7,500 Marriott Rewards points simply for adding your first authorized user within 3 months of account opening and making a purchase.
  • Key Fees. The card’s annual fee is $85. There are no foreign transaction fees. Balance transfers cost the greater of $5 or 3%, and cash advances cost the greater of $10 or 5%. Late payments range from $15 to $37, depending on balance. Returned payments are $37 each.
  • Introductory APR. There’s no intro APR.
  • APR. The purchase and balance transfer APR is 16.24% to 23.24%. The cash advance APR is 25.24%, and there is no penalty APR.
  • Other Perks. You get a free night’s stay at select Marriott hotels (Category 1-5) on your account anniversary each year.

Capital One® Venture Rewards Credit Card

Unlimited 2 Miles for Every $1 Spent; Redeem for Virtually Any Travel Purchases or Cash Back Equivalents

capital one venture rewards credit cardThe Capital One Venture Rewards Credit Card is a straightforward, no-surprises card. For every $1 you spend, you earn 2 Venture miles. Miles are always worth $0.01.

It’s important to note that the Capital One Venture Rewards Credit Card isn’t a straight-up hotel rewards card. In fact, you can redeem points for statement credits on virtually any travel purchases: hotels, flights, rental cards, vacation packages, cruises, and more. Because of this, there are no blackout dates – you can stay at any hotel, anytime, and just redeem your miles as a statement credit after your stay (within 90 days of purchase). You can also use accumulated miles to make travel purchases directly through Capital One’s booking center, and for general statement credits or paper checks. Redemption minimums vary depending on redemption method.

The Capital One Venture Rewards Credit Card has a nice sign-up bonus: 40,000 bonus miles when you spend at least $3,000 in the first 3 months of membership.

  • Sign-up Bonus. Earn 40,000 bonus miles, good for up to $400 in travel purchases, when you spend at least $3,000 within 3 months of account opening.
  • Key Fees. The card carries a $59 annual fee, waived for the first year. There is no foreign transaction or balance transfer fee. Cash advances cost the greater of $10 or 3%, and late payments cost $35.
  • Introductory APR. There’s no intro APR.
  • APR. The purchase and balance transfer APR is a variable 13.24% to 23.24%, depending on creditworthiness and prevailing rates. There’s no penalty APR. The cash advance APR is 23.24%.
  • Other Perks. You get free, unlimited access to your FICO credit score and access to useful credit-building tools with Capital One Credit Tracker.

Chase Sapphire Preferred® Card

2x Points on Travel & Dining at Restaurants; 1:1 Transfer to Participating Frequent Traveler Programs

chase-sapphire-preferredThe Chase Sapphire Preferred Card is simple, elegant, and powerful. Purchases on travel and dining at restaurants earn 2 Ultimate Rewards points per $1, with no spending caps or restrictions. All other purchases gives you 1 point per $1. You can also transfer points to participating frequent traveler programs, such as Southwest Airlines Rapid Rewards and IHG Club Rewards, at a one-to-one ratio. For instance, 1,000 Ultimate Rewards points equal 1,000 IHG Club points.

When redeemed for airfare and hotel purchases through Chase’s Ultimate Rewards portal, you get 20% off, making your Ultimate Rewards points worth up to $0.0125 apiece. You can also redeem for gift cards, cash (statement credits, direct deposits, or checks), and merchandise, mostly at a $0.01-per-point rate. The redemption minimum is 2,000 points.

The Chase Sapphire Preferred Card has a solid sign-up bonus: 50,000 bonus Ultimate Rewards points when you spend at least $4,000 within 3 months. Enjoy access to VIP packages and exclusive deals at a host of sporting and entertainment events, including the PGA Championship.

  • Sign-up Bonus. Earn 50,000 bonus points, worth up to $625 on airfare and hotels purchased through Ultimate Rewards, when you spend at least $4,000 within 3 months. Earn an additional 5,000 points (worth up to $62) for adding an authorized user to the account and making one purchase within 3 months.
  • Key Fees. The card’s annual fee is $95 but it is waived the first year. There are no foreign transaction fees. Late payments range from $15 to $35, depending on balance size. Returned payments are always $35. Balance transfers cost the greater of $5 or 3%, and cash advances cost the greater of $10 or 5%.
  • Introductory APR. There is no intro APR.
  • APR. The purchase and balance transfer APR is 16.24% to 23.24%, variable with prevailing rates, and the cash advance APR is 25.24%. There’s no penalty APR.
  • Other Perks. Cardholders get VIP packages, early access, exclusive deals, and concierge treatment at entertainment and sporting events, including the PGA Championship.