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Transcript: Should you buy the warranty?

Anchor Intro: If you've bought anything from an electronics or appliance store, you've probably been asked to extend the warranty by paying more money. Worth it? According to Bankrate.com, the answer is almost always no.

Voice over 1: Would you like a little peace of mind with that gadget? According to Consumer Reports, Americans will spend about $1.5 billion this holiday season on extended warranties.

Voice over 2: But are extended warranties or service contracts a smart buy? Consumers Union says they almost never are. For a simple reason: They're expensive and aren't often used.

Voice over 3: Take digital cameras: According to Consumer Reports, fewer than 10 percent need repair within the first three years. And the cost of a one-year warranty on a $300 camera can easily add 60 bucks to the cost.

Voice over 4: Also reliable are larger appliances. The cost of the warranty will likely outweigh the cost of a repair, and the odds of a repair being needed aren't that great.

Voice over 5: As with most rules, however, there are exceptions. Apple computers have such a short factory warranty -- three months -- and a high cost for phone help -- $49 per call -- that Consumer Reports does suggest an extended warranty for these.

Voice over 6: And rear-projection micro-display TVs break three times more often than other kinds, so they suggest extended warranties here too.

Voice over 7: And if you do decide on an extended warranty for anything you buy, they also suggest not spending more than 20 percent of the value of the item. And don't leave home without checking out your credit cards: They may already offer some protection.

Standup: According to Consumer Reports, the profit on extended warranties approaches 50 percent, a much higher profit margin than on most merchandise. Maybe that helps explain the hard sell you often get at the checkout. For Bankrate.com, I'm Kristin Arnold.

Bankrate.com's corrections policy
-- Posted: August 1, 2008
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