When considering the purchase of a service contract or extended warranty, it is important to weigh the costs of the contract against the cost of possible repairs - or replacement - of the product.
Compare the service contract with the manufacturer's warranty to make sure your coverage will not overlap. Be aware of vaguely worded exclusions or limitations in coverage or maintenance requirements which, if not followed, would allow the company to deny coverage. Find out how repairs are paid for, and if you must obtain prior authorization, and learn about the financial backing of the contract.
Do remembere that there is a difference between warranties and service contracts. A warranty promises to perform needed repairs and that it be free of defects. A service contract may offer no promise of quality, only a commitment to work on the problem.
Under Federal Law, It's Not Even A Warranty:
The Federal Trade Commission says consumers, before signing any extended coverage contract, should fully understand its terms and coverage. The agency also stresses that what consumers are actually buying is not an extended warranty but a "service contract."
"A service contract is a promise to perform, or pay for, certain repairs or services. Although a service contract is sometimes called an 'extended warranty,' under federal law, it is not a warranty," the FTC says.
"A warranty comes with the original price of the product, whereas a service contract costs extra. It is mainly this separate and additional cost that distinguishes a service contract from a warranty."