To clean up the industry new rules will be introduced by the Government this April, but shoppers will still have to be wary when visiting their high- street stores. Tim Young, a senior researcher at Which? says: "You should always think about whether you might like extended warranty cover before shopping, not at point of sale when you are likely to be more impulsive. Remember that you can go away and think about the warranty deal even after buying the goods. This way you can also shop around for a better price."
The first consideration is whether you actually need an extended warranty. A manufacturer's warranty should automatically cover you for at least the first 12 months after purchase, making the cover redundant. Home contents insurance is also likely to cover against accidental damage and fire for key household items. By raising the premium by just a few pounds a year you can guarantee all the electrics are covered. And some stores might offer "free" extended warranties as part of their sales deal. Mr Young adds: "Don't forget that major electrical appliances rarely break down in the first few years, and when they do, they may be obsolete and it is better to purchase a new model."
Typically, an extended warranty covers for breakdown due to accidental damage, fire or theft as well as technical faults. However, there may be exclusions and the policy may not cover against faults caused by other factors, such as weather. Retailers such as Dixons - which includes PC World and Currys, Comet and Argos - have a huge incentive to keep warranty customers signing up. Although less than 10 per cent of these retailers' income is from extended warranties it accounts for up to half of their pre-tax profits. According to the Department of Trade and Industry, up to pounds 152m was skimmed off in "excess" warranty profits by the high-street giants from 1997 to 2001 that shoppers would have saved in a more competitive market.The Office of Fair Trading (OFT) followed up these findings and passed them to the Government's Competition Commission which discovered a "complex monopoly".
Kate Wilcox, a spokeswoman for the OFT says: "What many people fail to realise is that you can shop around for extended warranty deals. Unfortunately, sales staff can give the impression it is necessary to take out the insurance at the same time as the purchase has been made. This is simply not true."
It may be worth considering a multi-appliance warranty policy as this could work out cheaper in the long term. But there's no need to hurry, as you have up to a year, sometimes more, before deciding to take out an extended warranty.
The changes to extended warranty laws should provide shoppers with a better deal by forcing retailers to be more competitive. Under the new rules shoppers will be allowed to cancel a warranty at any time and receive a pro-rata refund - the full amount if cancelled within 45 days. From April, warranty prices must be clearly shown alongside electrical goods. Shoppers will have to be informed of the small-print details of the terms of the extended warranty and their statutory rights. They must also be informed what will happen to the warranty if the company goes bust. If consumers take out a warranty backed by an insurance company, then in the event of the insurer failing, they might be able to make a claim via the Financial Services Compensation Scheme.
n Apple 17in Powerbook laptop: Cost pounds 1,900
PC World pounds 549
warrantyex.co.uk pounds 299
n Zanussi ZSF6160 dishwasher: Cost pounds 289
Five year warranty:
Currys Cover Plan pounds 149
warrantyex.co.uk pounds 88Reuse content