If you’re a regular Consumers' Checkbook reader, you already know where we stand on extended warranties (also referred to as “protection plans”). We often share our advice on the subject.

The key point is that extended warranties are insurance policies. But unlike auto, homeowners, health, and life insurance, they insure against relatively small losses—potential repair or replacement costs—and pay out in claims only a small portion of what they take in. Most new appliances are very reliable, and those that do break down are likely to do so right away, while still covered by the manufacturer’s warranty. And keep in mind that many credit cards double the length of manufacturers’ warranties when you charge the purchase.

Extended warranties are a good deal for the stores that sell them, and the companies that administer them and pay the claims—but a bad deal for most consumers. On average, more than half the price of extended warranties goes to the retailers, much of the rest stays with the companies that back and administer them, and less than 20 cents of every dollar taken in actually gets paid out in claims.

Because retailers make so little on the sale of appliances themselves, it’s hardly surprising that appliance buyers have to virtually fight their way out of the store to avoid buying an extended warranty. Many retailers count on the sale of extended warranties for most—or even all—of their profits.

If you are still thinking about buying an extended warranty, shop around. You don’t have to buy one at the time you purchase the appliance, nor do you have to buy it from the store that sells you the appliance.

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