Are extra guarantees money down the drain?

Tales of "Dishwasher Repair Man Number Fifteen" are a gift to those selling extended warranties that guarantee "peace of mind" in the event of breakdown. Rachel Fixsen investigates whether these products are really worth the money or whether consumers are unwittingly buying policies that are overpriced, oversold and overrated.

We've all heard the story. The appliance blows up and the repair man comes round. He sucks his teeth, warns it will need a new part and departs 15 minutes later, having extracted his pounds 45 call-out fee. Three weeks later, the machine is still on the blink, the kids are wearing yesterday's dirty underwear and the house is full of damp, handwashed clothes.

Apocryphal? Perhaps not. What is clear though is that television consumer programmes often unwittingly heighten fears that household appliances will break down, making the packaged insurance that electrical retailers are so eager to sell with your new product look particularly attractive.

Mark-ups on the policies are often higher than those on the appliances themselves. These insurance policies could become an even more significant money-spinner for retailers next year if margins on white goods become slimmer still. The Monopolies and Mergers Commission has proposed that the recommended retail price system on white and brown goods be scrapped. White goods include dishwashers and fridges whereas televisions and camcorders are classed as brown goods.

Consumer groups have warned that extended warranties sold by retailers can be a bad deal. The Consumers' Association has branded the policies "overpriced, oversold and overrated".

Earlier this year the Office of Fair Trading said although the cost of extended warranties on electrical goods had fallen since its investigation three years ago, the policies were still poor value.

"In most cases extended warranties are still significantly more expensive than the likely cost of repairs over the warranty period," said John Bridgeman, Director General of Fair Trading.

Retailers' warranties may be even worse value in the wake of changes in the Conservative government's last Budget in November 1996. The Chancellor announced that henceforth, insurance premium tax, which normally adds 4 per cent to the cost of a policy, would rise to 17.5 per cent in the case of warranties sold by retailers.

Although most retailers said they would absorb these extra taxes within the existing price of the warranties, it is difficult for shoppers to judge whether this has taken place. Moreover, if true, it also gives an indicator to the extent of the profits which some retailers made from the sale of this insurance.

Manufacturers' warranties can be cheaper than those offered by the retailer, but if the in-store salesman has already got you to sign on the dotted line, it is too late to take advantage of them.

Just how likely is it that your cooker will leave you in the lurch, packing up just before a dinner party and leaving you with a hefty repair bill? Not very, according to research by the Consumers' Association. It found there was a one-in-six chance that even the least reliable type of appliance would break down more than once in the four years following the free one-year guarantee period.

TSB, which offers its own appliance repair insurance, says average claim values on domestic appliances are between pounds 70 and pounds 150. Products which use water and have moving parts - washer/dryers and dishwashers - are the most likely to go wrong. Most reliable are fridges, cookers and televisions.

Some products, particularly if they get heavy use, might be worth insuring. Retailer Curry's charges between pounds 149 and pounds 199 for a five-year warranty on a washing machine. At rival Comet, a five-year warranty costs pounds 169.99 on a pounds 300 washing machine.

Comet has introduced cashback warranties, where the retailer promises to refund the price of the warranty at the end of the period as long as no claims have been made. But you have to be on the ball to get your money back, remembering not only to register the warranty at the beginning of the period, but also to apply for the rebate within a month when the five-year period is up.

Extended warranties often cover the first year of a product's life. This can be wasted because any faults are likely to be covered by the manufacturer's guarantee.

Domestic appliance insurance can be a simpler, and cheaper, way of protecting yourself against the expense of possible breakdowns. Apart from TSB, Norwich Union and Midland offer policies.

A TSB policy may be taken out when the appliance is new, but premiums only become payable once the manufacturer's guarantee runs out. Also, the premiums are paid monthly, rather than up front. A washing machine costs pounds 1.78 a month to insure in the first year after the guarantee expires, then pounds 4.57 a month for the next three years.

Midland will insure up to 17 appliances for pounds 11 a month. Norwich Union's policy charges start at pounds 6.99 a month. Check whether the policy offers a new machine if the old one is a write off, whether there's an emergency claim line and whether the insurer arranges and pays for the repair.

Midland: phone 0800 299 399; Norwich Union: phone 0800 888777