Is domestic appliance insurance worth the cost?
By Ben Salisbury
Domestic appliance insurance can work out to be much better value than paying for extended warranty cover at the point of sale when you have just bought a new piece of household equipment.
However, before you decide to take out domestic appliance insurance you need to do your research. Like any other type of insurance the cost and scope of the cover varies with different providers.
What is domestic appliance insurance?
Domestic appliance insurance is insurance cover to replace equipment that goes wrong. It is worth considering this type of insurance if you have expensive equipment such as a cooker, dishwasher, washing machine, expensive TV or other type of high-value electrical equipment.
Remember that most of these goods that you purchase will come with a one year guarantee automatically, so if you are going to purchase this type of insurance it makes sense to do so once the standard guarantee ends.
Why extended warranties are a rip-off
Extended warranties purchased in a shop at the time of sale are almost always a complete rip-off. Many warranties sold in this way cost almost as much as the product themselves and you are better off taking the risk and just buying a new product if it goes wrong.
There are a few exceptions. I recently bought a new LCD TV from Richer Sounds and their extended warranties have an excellent reputation because the cost for five years extra cover on most products is set at ten per cent of the purchase cost. If you are offered extended cover at this price on a product you know you will use a lot it could be worth considering the extended warranty rather than purchasing domestic appliance insurance once the original guarantee runs out.
However, in most instances buying appliance insurance from a separate provider will work out to be better value. The price you pay for an extended guarantee has been carefully worked out to ensure that both the retailer and the insurance company make a tidy profit. A report by Consumer Reports from 2003 found that the profit margin is often as high as 70 per cent but that less than ten per cent of products required repairs in the first three years.
So, why do we buy them?
The UK office of Fair Trading conducted some research in October 2008 and discovered that 68 per cent of consumers purchase extended warranties and that in the UK we spend £24.3 billion annually on domestic appliances.
Sales staff can be very persuasive and they catch you at a vulnerable moment, just after the sale has been agreed and many consumers are proud of their new purchase and want to look after it. The best policy is to walk away, take the standard guarantee and look at insuring the goods after the guarantee ends.
If you do purchase an extended warranty at point of sale it is worth bearing in mind that you can cancel this up to 45 days after the purchase date and get a full refund.
As mentioned earlier, all domestic appliances come with one years’ guarantee and some with two or three years. This means you never need buy an extended warranty at the time of purchase. Most of these domestic appliances will give three years good service if maintained properly.
Is domestic appliance insurance a good option after a few years?
You need to decide, taking into account the value of the appliance, how much it will cost to repair, how much a replacement product will cost and how important the product is to your household.
One option to consider is a combined domestic appliance insurance policy where you can get three or more products covered under one policy. This can make the insurance cheaper.
Checks to make if you decide to take out domestic appliance insurance
As with all types of insurance you need to compare different providers to find the best type of domestic appliance for you in terms of type of cover and price. You also need to check the small print. There are often restrictions that can make the difference as to whether a policy is good value or not.
Some policies have age restrictions on the appliances. So, if it is more than eight years old, some companies won’t cover it. Some policies will cover for labour costs but not parts.
You also want to make sure that if your domestic appliance needs repairing, that the repairs are carried out by a reputable tradesman who is accredited to carry out repairs for that particular appliance. Other factors to consider are whether the provider offers unlimited call-outs on each or all of your appliances that you are considering taking out insurance for.
Other common exclusions are that you cannot claim for cosmetic improvements or to re-set the controls. In addition to this there can be a lot of difference in the level of cover provided. For instance, British Gas only cover kitchen appliances and if the appliance is under three years old but they consider the repair to be too expensive to carry out then they will replace it with a new similar model.
However, if the appliance is over three years old then they will pay 30 per cent towards the cost of a replacement.
How much should you pay?
Economies of scale mean that if you choose a bundled domestic appliance insurance policy of three or five products the relative cost goes down. Basically you should not pay more than £5 a month for a single item and you should look to reduce this cost the more items you are bundling together for a domestic appliance insurance policy.
Top tips to get a better deal on Domestic Appliance Insurance
You may already be covered through another financial product that you hold. Some credit cards provide a free extra years’ warranty if you buy electrical goods using them. So, if you are planning on buying domestic appliances it could be worth getting one of these credit cards to make the purchase with.
Check your home insurance policy because some policies cover electrical goods against accidental damage and theft, though breakdown cover is not normally included.
It is also important to note that your consumer rights are protected to a certain level without warranties. If the goods are faulty or not fit for purpose within six months of purchase you can take them back and the onus is on the retailer to prove that the item was not faulty when purchased.
Finally, on occasions extended warranties can be used as a lucrative bargaining chip to reduce the cost of the item you are buying. Salespeople often have targets for the sale of warranties each month and this can be a very important source of income for them. So, if you can get ten per cent or more of the price of the item by buying a warranty this can save you money.
And remember, you then have 45 days to cancel the extended warranty which means that you have got the discount you haggled for without paying anything extra.
Use the Myfinances.co.uk comparison tools to find a better deal on domestic appliance insurance.
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