Extended warranties can be iffy

The Baltimore Sun


Whether you love them or hate them, swear by them or avoid them like the plague, we still manage to spend a whopping $15 billion on extended-service warranties every year in this country.

While there has been much debate about how much value such warranties really offer to consumers, Donna Beth Shapiro of Bolton Hill had a more specific concern, not about the product she purchased but about the company responsible for maintaining the warranty sold to her.

"I just purchased an HP notebook and paid $429 for a four-year extended warranty from a company whose future I doubt - Circuit City," Shapiro said. "Would I be out of luck if Circuit City goes out of business?"

Shapiro says the extended warranty kicks in after the one-year HP warranty expires.

When Shapiro called the store to ask her question, she said a customer service representative told her that "I would get reimbursed for the unused portion of the warranty. Assuming the refund policy is real, getting [money] is fine, but being without the protection of an accidental damage warranty on my new laptop is not, and I'm not sure how one would acquire a new warranty on a then-used notebook computer."

The A:

In most cases, a warranty is only as good as the company behind it.

If the company that sold and is responsible for administering the warranty goes defunct, so does your warranty. The chances of getting a refund on the unused portion of your warranty in the event of a bankruptcy are also pretty slim. Customers could get in line at the bankruptcy court, but banks, bondholders and other businesses that a company owes money to would get paid first.

At best, customers could expect to get back pennies on the dollar.

This is not to say that Circuit City is planning to close up shop, but Shapiro is probably referring to the Richmond, Va., company's continuing efforts to turn itself around amid an executive-level shuffle, worker cutbacks, slow sales and a recent shareholder proxy battle to oust directors on its board.

Finding another company to sell you a warranty for an old, used laptop would be difficult, too.

While used cars are frequently insured with extended warranties, and home warranties almost always insure some old appliances, finding an extended warranty for old electronics or computers would be unusual, says Eric Arnum, editor of Forest Hills, N.Y.-based Warranty Week.

"What usually happens is the insurer makes an inspection, especially with a used car," Arnum says. "They first want to make sure the car exists and, second, want to make sure it runs. Sometimes, there's also a 30-day waiting period. These techniques haven't made it too deep into the computer or electronics field, but that's only because the business is so set up to focus on the time and point of sale at the cash register."

Shapiro might have better luck finding an accidental damage policy from her homeowner's insurance company.

This doesn't mean Shapiro is entirely out of luck. In fact, she can probably relax, Arnum says.

CompUSA, which shuttered its stores this year, also sold millions of extended warranties to its customers, Arnum said.

"But behind them was an insurance company, Assurant Solutions, which was obligated to step in and honor the warranties," Arnum said. "It just so happens that Circuit City works with the same insurance company - Assurant Solutions - so, in an ironic way, the insurance company is already experienced with exactly this sort of calamity."

In the case of CompUSA, all calls for service to toll-free numbers previously provided to CompUSA customers were directed to call centers operated by Assurant and its service partners. Assurant also set aside reserves to cover its obligations for the terms of the CompUSA plans.

While carry-in service is no longer available to CompUSA's former customers, Assurant does provide prepaid shipping boxes for sending items to a service center for repairs, according to a news release Assurant issued last month.


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