6 Rip-Off Tip-Offs

Learn who's after your cash -- and how to keep them from getting it.

By Lisa Collier Cool from Reader's Digest | August 2008

4. Extended Warranties

Gene Retske, a telecommunications consultant in Ballentine, South Carolina, spent $1,000 on an extended-service contract for his $15,000 Bayliner motorboat, then tried to collect when the starter blew. “The woman on the phone listed one reason after another why they wouldn’t pay. I’d read the contract and kept telling her she was wrong. Then she claimed I’d put the boat in a ‘hostile environment.’ What-water?” Retske, 61, got the firm to cover the $300 engine repair only after he threatened to go to consumer-protection agencies.

Increasingly, car owners are getting urgent-sounding notifications claiming that the manufacturer’s warranty is about to expire. Some have paid over $1,500 for an extended service contract even though their factory warranty is still in effect. Often the phony notices come from firms with the word dealer or warranty in their name, to create the illusion that they work for the car’s manufacturer or dealer.

Even when they’re legitimate, “extended warranties are almost always a sucker’s bet,” says Tod Marks, a senior editor at Consumer Reports. You’re gambling that the product will malfunction or break after the manufacturer’s one- or two-year warranty ends but before the one-year extended coverage expires. And you’ll usually lose: 65 percent of car owners who ante up the $1,000 or so for an extended-service contract recoup only $700 on repairs, says Consumer Reports.

The best advice: Retailers profit by as much as 80 percent on these contracts. Bank the money you would have spent on an extended warranty. “Everything you own isn’t going to fall apart at the same time,” says Travis Ford, “but if one thing does, you’re covered.”

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