Are extended warranties worth it?

You're just about to part with a couple of thousand dollars to buy a new LED TV when the sales assistant asks if you want to buy an extended warranty.

This will cover you for repairs if something goes wrong in the next three to five years (you can generally choose the period). It's tempting - you're already paying big bucks so what's a few hundred dollars more for protection that lasts longer, right?

Wrong - it pays to think about it before forking out the cash.

Extended warranties are offered with most electrical goods, from cheaper products like blenders and toasters to pricier items like whitegoods, computers, digital cameras and other electrical goods.

And they don't come cheap. According to a 2008 NSW Office of Fair Trading and Choice survey, customers pay from 6% to 24% of the value of the item.

For example, JB Hi-FI will charge you $349 for a four-year extended warranty on a plasma TV valued between $1501 and $2000.

But you have basic consumer rights without having to pay for them. Goods bought after January 1, 2011 are covered by nine consumer guarantees including that they're of acceptable quality, they're fit for the particular purpose, match their description and match the sample or demonstration model.

See accc.gov.au for the other five and more details on consumer guarantees. If you bought something before January 1 you're still covered by something similar called a statutory warranty.

On top of that, some manufacturers and retailers offer a "voluntary" warranty.

This is usually written down and outlines what the manufacturer will do if something goes wrong within a set period, usually one year. You may have to send back a special card that comes with the item to activate the voluntary warranty, or the retailer may simply ask you to keep the receipt.

If you pay by credit card you may get extra protection as some cards offer extended warranty coverage for free.

These tend to be the more expensive gold and platinum cards. Find out if yours offers an extended warranty rather than paying for one at the checkout.

According to Choice, many products are more reliable than you may think. Its 2007 survey showed more than 90% of TVs, digital cameras, washing machines and fridges bought by respondents since 2000 didn't need a repair in the previous 12 months.

"It may be worth buying an extended warranty for some products, such as computers, which can be less reliable than other appliances," says Choice.

"Or, if you're thinking of buying a brand or technology that's new to you, or a particularly expensive item where you're worried about faults occurring down the track, an extended warranty may be worth it."

Also think about the warranty price versus the cost to repair or replace. The product you're buying might not cost that much to repair or even replace, particularly as the price of new technologies often falls rapidly. Extended warranty for a relatively inexpensive item is probably a false economy.

If you do get one, make sure you understand the terms and conditions - what is and isn't covered, whether there's a cooling-off period and so on. See the checklist above.

Make sure you find the answers to your questions in the brochure and don't simply rely on what the salesperson says. Choice's research reveals that sales assistants often give incorrect and at times completely misleading information.

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