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Service contracts or “extended warranties” extend the guarantee or promise that a product will work, for an additional cost. Sellers offer these service contracts at the time of purchase. Third party firms may also try to sell you a warranty; some even make cold calls to you with high pressure sales tactics. Some extended warranties duplicate warranty coverage that you get automatically from a manufacturer or seller, so this add-on may not be worth the cost. Ask these questions before you agree to one of these contracts:

  • Does the dealer, the manufacturer, or an independent company back the service contract?
  • How are claims handled? Who will do the work and where it will be done?
  • What happens to your coverage if the dealer or administrator goes out of business?
  • Do you need prior authorization for repair work?
  • Are there any situations when coverage can be denied? You may not have protection from common wear and tear. And some manufacturers do not honor contracts if you fail to follow their recommendations for routine maintenance.

For more information about warranties, check out resources from the Federal Trade Commission.