Service Contracts

Whether you are purchasing a major appliance or buying a small electronic product, it seems as though there’s always a service contract available.  Typically, the contract costs a few dollars extra, depending on the original purchase price, and involves an extension on the warranty.

In some cases, service contracts aren’t a wise option for the consumer.  The companies make millions of dollars on service contracts, primarily, because they are rarely used.  The vast majority of new products work fine for several years, which is longer than the time period covered by most of these contracts.

Overall, the price you pay for the service contract is based on the odds of the product breaking down in the first year or so, multiplied by the average cost for repair or replacement, with a nice profit at the end.  A service contract may be a good idea is if you feel the product will experience a lot of wear and tear.  Other than that, though, the odds usually aren’t in your favor.